Colin Barnett is a determined to be an iron ore and economic dill, fresh from Bloomberg:
“The signal’s going out to the market that there’s going to be ever-increasing amounts of iron ore available even at lower prices,” Colin Barnett said in an interview. “The market signal is wrong, and I believe the major companies have a flawed strategy. I don’t think it’s good business for them or their shareholders…They should reschedule some of their production and give a signal to the market that yes, we’ll cater to iron ore demand and we’ll cater for growth, but we’re not going to flood the market…If Rio and BHP come to me in the future, they will have to seek rights to expand their projects. I might say ‘yes’, I might say ‘no’.”
He also made the ludicrous forecast that iron ore will be back at $80 next year. Here’s the cost curve from UBS:
If BHP and RIO pull expansions then the price will barely budge as Anglo, Sino and Roy Hill continue to expand and Chinese demand to fall.
If the juniors and the great glut builder itself, FMG, pull production then the price still falls but the supply market at least consolidates, shortening the shakeout and offering hope of a higher base price (though still much lower).
The iron ore market is a natural oligopoly owing the economics of scale and capital intensity and it is also a low margin high volume business. What is at stake here is who owns it and where the price ultimately settles not whether competition can be sustained. It is therefore quite clear that Australia and WA are better off with less junior production than less major production.
Colin is blame shifting for his own purposes or is a fool.
