In the ongoing debate over iron ore prices and supply, the Minerals Council of Australia says BHP Billiton (ASX:BHP) and Rio Tinto (ASX:RIO) are not guilty of flooding the iron ore market. Brendan Pearson, the Council’s Chief Executive Officer, spoke at a conference in Brisbane and cited falling production for both mining giants. “I’m not sure it’s possible to flood the market when your share is falling,” he said. “Over the same period, the biggest single expansion in iron ore output has come from Fortescue Metals — that’s from 2010 to 2014.”
The comments from the Council come amid concerns over a parliamentary inquiry into the supply operations of Australia’s largest iron ore mining companies. The steelmaking product is the country’s largest export. After the released of the Commonwealth Budget, Australia’s tax receipts will be cut by $52bn over the next four years, largely driven by falling iron ore prices. BHP Chief Executive Officer Andrew Mackenzie said an inquiry would be a “terrible signal” to Australia’s trading partners. “This is a ridiculous waste of taxpayers' money on providing a basic economics course on supply and demand,” he said.
Iron ore prices have plummeted more than 60 per cent in the past year, from US$135 per tonne at the beginning of 2014 to below US$50 per tonne in the same period in 2015. Over the past month and a half, the commodity has recovered slightly and is floating a little below US$60 per tonne. The Minerals Council said that although BHP and Rio were not oversupplying the market, Fortescue Metals Group (ASX:FMG) had not slowed its production. However, Fortescue’s founder Andrew Forrest claims both BHP and Rio are intentionally oversupplying the market to push out smaller operations.
Author: Simon Herrmann
May 19, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.