You simply have to watch this video of Andrew Forrest on the ABC last night. Here are some of the money quotes:
“It’s a bit of one man against a couple of global giants, but I’m after responsibility,” Mr Forrest said.
“What’s created [is] anything but a free market.
“What’s created [is] a manipulated market [that] is the nauseously repeated statement of oversupplying the market, of driving down the iron ore price, of being the last man standing.
“These are statements which you and your audience would never have heard from any responsible chief executive, and we’ve had two chief executives both saying it at the same time.”
“Our very clever game from our boardrooms in London to drive down the iron ore price has actually turned an iron ore industry which was building a country into something like the alumina industry,” he said.
“Where you basically keep one nostril above the water line to stop yourself from drowning because the profits there are so small and the taxes raised so little.
“They’re not defending us from anyone, Australia is the biggest in the world, they’re just completely ruining our advantage.”
“That’s like $50 to $60 billion each year you’ve pulled out of the Australian economy, and so no wonder we are now having our credit rating as a country questioned by leading authorities,” he said.
“No wonder our deficits are looking bad, our surpluses are looking decades out, all because a iron ore price game started to be played with a British company who is not responsible for the interests of their host country.”
“You’ve seen other multinationals behave responsibly towards Australia, yet we’ve got one London-based multinational that appears to look at Australia as a play thing,” he said.
“We’ve had one company lead a predatory volume strategy to try and drive everyone else out and in the process is slamming the Australia economy and I’m saying that’s totally irresponsible.”
“Australia controls this iron ore price, even Vale follows Australia’s lead,” he said.
“We’re expanding to protect Australia to make Australia more competitive, if that were true how many players do you think have come into the iron industry since they started, since Brazil and Australia got started, how many?
“One. One, and that’s Fortescue.
“This is the most protected, heavy barrier to entry industry that’s ever existed in the resources world and they’re out there saying, we’re expanding to defend Australia.
“Well actually they’re not, they’re expanding to drive the iron ore price down to try and get everyone else out.”
Wow. That is such an impressive feat of bluster and hot air it is impossible to combat. The basic logic flows from the last distortion, that the iron ore market has seen only one new iron ore player since Australia and Brazil started. Here’s the chart of expansions just in the last few years:
And this doesn’t include the Australian juniors, Sino Iron, Minas Rio phase 2, Ferrexpo, various Brazilian juniors, much of Indian production, even Mexican drug cartels. Everyone was into iron ore expansion in this cycle, absolutely everyone. That’s what has created the oversupply.
I can only repeat that there is no way out for iron ore except down. If RIO invites Mr Forrest into a cartel then his costs of production are so high that it means all other major players in the market also survive and the price will collapse anyway, unless RIO progressively shuts its entire iron ore operation.
Forrest is clearly determined to destroy RIO’s reputation as he sinks. There is no combating it. The best thing that RIO can do is to keep quiet and redouble its expansion efforts.
