The call by the billionaire founder of the world’s fourth-biggest iron ore exporter for producers to agree to cap production will be examined by Australia’s competition regulator.
Fortescue Metals Group Ltd. Chairman Andrew Forrest urged major competitors Tuesday to limit output to boost prices that have slumped 50 percent in the past year to below $55 a metric ton amid increases to seaborne supply.
“I’m absolutely happy to cap my production right now,” Forrest said March 24 in Shanghai, according to the Australian Broadcasting Corp. “All of us should cap our production now and we’ll find the iron ore price will go straight back up to $70, $80, $90.”
The comments swiftly prompted the Australian Competition and Consumer Commission Wednesday to seek an explanation from Forrest, saying any attempt by Australian businesses to encourage competitors to restrict output is a matter of “grave” concern.
“The ACCC will be looking closely at Mr. Forrest’s comments and the context in which they were made,” Rod Sims, chairman of the regulator said in a statement.
Forrest’s comments were “intended to draw attention to the fact that there is provision in Australia’s competition law dealing with the potential for discussions to be held by exporters,” Fortescue Chief Executive Officer Nev Power said in a statement, citing the Competition and Consumer Act.
The law includes an exemption in some limited circumstances in relation to goods exported from Australia, the competition commission said in a separate e-mailed statement.
‘Dumbest Plays’
Iron ore sank 47 percent in 2014 and extended losses this year as surging supplies from Fortescue, BHP Billiton Ltd. and Rio Tinto Group, outpaced demand growth, spurring a surplus just as economic growth slowed in China, the biggest buyer.
Flooding the market with iron ore is “one of the dumbest corporate plays I’ve ever seen,” Colin Barnett, the Premier of Western Australia state, the home of the nation’s iron ore industry, said this month, according to ABC radio.
Fortescue last week pulled plans to refinance some of its debt with a $2.5 billion bond as tumbling prices for commodities spooked investors.
After embarking on $120 billion of spending on new projects since 2011, the biggest iron ore producers are continuing to expand output.
“When you’re just driving for market share at any cost and you’re smashing the revenues of your host nation, and you’re smashing the revenues of your shareholders, in the end you smash your own personal credibility,” Forrest said at a dinner hosted by AustCham Shanghai, according to the ABC.
Seaborne Supply
“Why don’t those companies who derive their fortunes from our nation act like grown-ups and just agree to cap their production.”
BHP spokeswoman Emily Perry and Rio spokesman Ben Mitchell both declined to comment on Forrest’s remarks.
Fortescue rose 1.5 percent to close at A$2.04 in Sydney.
Seaborne iron ore supply will exceed demand by 129.3 million tons in 2017 from an estimated 55 million tons this year, according to Morgan Stanley.
Rio, the second-largest exporter, will deliver 330 million tons of output by 2015 and 350 million tons by 2017, iron ore CEO Andrew Harding said this month.
BHP, the third-largest, forecasts it could reach 245 million tons in the 2015 financial year. Fortescue, sees full-year production rising to about 155 million to 160 million tons in the 12 months to July.
BHP, Rio
Both BHP and Rio Tinto have defended their production strategy, insisting that any move to cut volumes would simply incentivize competitors to raise output.
“We will be penalizing, in essence, our shareholders,” BHP’s head of iron ore Jimmy Wilson said March 10 in Perth.
Larger suppliers won’t cooperate over production volumes, Rio Chief Executive Officer Sam Walsh said in an earnings call last month. “Whether you like it or not, there’s no OPEC in iron ore,” he said. “It’s independent producers making their independent decisions.”
Iron ore at the Chinese port of Qingdao rose 1.9 percent to $55.86 a metric ton on Tuesday, according to Metal Bulletin Ltd. data.