A call by the billionaire founder of the world’s fourth-biggest iron ore exporter for producers to agree to cap production is to be examined by Australia’s competition regulator.
Fortescue Metals Group Ltd chairman Andrew Forrest on Tuesday apparently urged major peers to limit output to boost prices that have slumped 50 percent in the past year to below US$55 a tonne amid increases to seaborne supply, according to reports.
“I’m absolutely happy to cap my production right now,” Forrest said on Tuesday in Shanghai, according to Australian Broadcasting Corp (ABC). “All of us should cap our production now and we’ll find the iron ore price will go straight back up to US$70, US$80, US$90.”
The comments led the Australian Competition and Consumer Commission (ACCC) yesterday 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,” ACCC Chairman Rod Sims 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 Australia’s 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.
Iron ore prices sank 47 percent last year — and have extended losses this year — as surging supplies from Fortescue, BHP Billiton Ltd and Rio Tinto Group outpaced demand, 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 US$2.5 billion bond as tumbling prices for commodities spooked investors.
After embarking on US$120 billion of spending on new projects since 2011, the biggest iron ore producers are continuing to expand output.
“When you are just driving for market share at any cost and you are smashing the revenues of your host nation, and you are 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 ABC. “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 declined to comment on Forrest’s remarks.
Fortescue shares rose 1.5 percent to close at A$2.04 in Sydney trading yesterday.
Seaborne iron ore supply will exceed demand by 129.3 million tonnes in 2017 from an estimated 55 million tonnes this year, according to Morgan Stanley.
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