A nice scoop for Matthew Stevens at the AFR speaking with Andrew Forrest:
“I just put the very simple argument that when we flagged our expansions in 2009-10, we were in a rising market and we spent the capital we did into that rising market. But the pursuit of market share and overall revenues has people now saying we could make 20-40 per cent per incremental tonne here so let’s put it out there.
“But what about overall revenues? Hold the phone…They are continuing to spend tens of billions into a falling market. So you are going to have to justify yourself and say that this is value creating. But what about your overall revenue base? It is falling because prices are falling. Then you are making a huge error.
With respect, the BHP and RIO expansions were also planned in a strong if not rising market. Forrest also critiques the argument that “if we don’t do it, someone else will” by saying that Glencore’s removal of coal supply hasn’t resulted in any surge in supply from others. This is awfully thin given Glencore only did it a couple of months ago and it hasn’t stopped the price falling anyway.
Forrest is right about the glut but that is really besides the point. The expansion capital has long ago been spent by RIO And BHP and they need a return. Besides, Vale, Roy Hill, Anglo and Sino are all expanding about 200 million tonnes right now versus BHP and RIO’s 100 million. It’s a massive schmozzle based upon the idiotic assumption by all (including Twiggy) that China would grow forever. The only way out now is all the way down.
As discussed this morning, however, what Mr Forrest is succeeding in doing (deliberately or not) by blaming big iron for his woes, is preparing the political ground for a new Chinese strategic partner to join FMG, which will save his firm but destroy the iron ore market permanently.
