Australian regulator to review Fortescue’s output cap call

25 Mar 2015


Australian competition watchdog ACCC has called upon iron ore miner Fortescue Metals Group's chairman Andrew Forrest to explain his calls for the world's biggest iron ore producers to work together to put a cap on iron ore production.

''The ACCC will be looking closely at Forrest's comments and the context in which they were made. In general terms, any attempt by Australian businesses to encourage competitors to restrict outputs is a matter of grave concern to the ACCC,'' chairman Rod Sims said in a statement.

Forrest expressed his comments yesterday in an Australian Chamber of Commerce (AustCham) event in Shanghai.

He called for iron ore mining giants Rio Tinto, BHP Billiton and Brazil's Vale to cap production at current levels to help plunging iron ore prices to recover.

Forrest said that he was absolutely happy to cap his production right now at 180 million tonnes.

The move would help iron ore prices to improve the prices straight back to $70, $80, $90 levels, he said.

"I'm happy to put that challenge out there, let's cap our production right here and start acting like grown-ups," he said.

The glut of iron ore in the market, mainly from Australia, has pushed down the prices for the commodity to around $55 a tonne from $112 a tonne a year ago.

 ''Ultimately, any success in increasing the price of iron ore in an anti-competitive way would be expected to lead to an increase in prices that Australian consumers pay for items such as whitegoods and cars,'' Sims said.

The regulator said Cartel conduct, anti-competitive agreements, price fixing and attempts to bring about collusive arrangements are very serious matters that the ACCC vigilantly detects, disrupts and deters.

Under the Competition and Consumer Act (2010), there are civil and criminal penalties for both cartel conduct and attempts to engage in cartel conduct, it said.

Criticizing Forrest's call, Australian treasurer Joe Hockey said, ''We're not very supportive of cartels at all.''

However, foreign minister Julie Bishop commented that ''it is an idea worth considering''.

The supply increase from Rio and BHP at lower prices has caused some controversy within the miners and the government.

Cliffs Resources chairman Lourenco Goncalves said earlier this month that BHP and Rio were on a path of "self-destruction" that would hurt the Australian economy.

The two miners have defended their strategies, arguing that if Australian companies did not produce the ore, other competitors would fill the gap.

According to some observers, Fortescue could struggle to survive in the future if prices remain low.

For the half year ended December, Fortescue's profits plunged 81 per cent to $331 million from $1,723 million a year ago.

Revenue was down 17 per cent at $4.9 billion despite achieving record iron ore shipment of 83 million, a 53 per cent increase from the prior period, on completing its mine expansion.

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