Fortescue’s Forrest accused of calling for cartel

OREANDA-NEWS. Australian iron ore mining firm Fortescue Metals founder Andrew Forrest has been accused of behaving in an anti-competitive manner, after he called on fellow iron ore producers to put a cap on production to help boost iron ore prices.

The Australian Competition and Consumer Commission (ACCC) has asked Forrest to explain what he meant when he called for the world's largest iron ore mining firms to put a cap on iron ore production.

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

Sims' comments relate to calls by Forrest for the UK-Australian mining firms BHP Billiton and Rio Tinto, as well as Brazilian miner Vale, to cap production. This would lead to iron ore prices rebounding as high as \$90/t, he added.

Forrest told a business gathering in Shanghai, China yesterday that he would be happy to cap Fortescue's production at 180mn t/yr and that the other mining firms should take up his challenge and do likewise.

Sims is concerned that it sounds like Forrest is promoting cartel conduct, which under Australian law can result in civil and criminal penalties.

Fortescue plans to ship 155mn-160mn t/yr of iron ore this year, but has the port capacity to ship 180mn t/yr. Fortescue wants to use its full 180mn t/yr of capacity at Port Hedland through shipments of its own iron ore, of magnetite from its Iron Bridge join venture and the possibly of third-party supplies. But it is constrained because it does not wish to spend money expanding its ore processing system and rail infrastructure in the current market. So the promise not to go above 180mn t/yr is misleading.

The other major Australian iron ore producers have much more aggressive growth strategies. Rio Tinto plans to produce more than 330mn t of iron ore in 2015, up from 302.6mn t in 2014, and then has further plans to expand to 360mn t/yr. BHP Billiton plans to produce 225mn t in the 2014-15 fiscal year to 30 June, up from 204mn t the previous year, with the potential to expand to 290mn t/yr by 2017.

These expansion plans, and the possibility of more to follow, have raised the prospect of huge oversupply in the iron ore market that will force all but the lowest cost producers out of business. BHP Billiton, Rio Tinto and Vale are among the lowest cost producers, below Fortescue by more than \$20/t.

Argus' 62pc Fe fines price assessment has fallen to around \$54/t cfr China from \$70/t at the start of this year and \$130/t at the beginning of 2014.