ICBC calls out Forrest

This about sums it up from offshore:

ICBC Standard Bank’s bulks analyst, Melinda Moore, didn’t name anyone in her overnight commentary, but she didn’t have to:


“We were going to ignore the Australian IO pricing debate, but a call for a national enquiry?!? Seriously: enough is enough!” wrote Moore, using double question and exclamation marks even without attempting a single play on words.

“If a company expands by dumping nearly 100mt of sub-economic, highly-indebted tonnes into the market, that is their choice. To then cry foul and ask the industry or worse still, the Australian tax payer to save them from themselves is an utter travesty of economics.

“If they had not added so much tonnage into the market last year, prices would be closer to $US80/t than $US55/t and Australia’s GDP receipts would be at least $13.6bln higher.

“The long-range expansions of lower cost competitors have been well flagged since 2008. The high-cost miner’s strategy was to beat these low-cost/better quality tonnes into the market. They now have only themselves to blame.”

Houses and Holes
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  1. So tiresome. This almost makes it official that Straya has two more knobheads: Forrest and Xenophon.

    • The Noah=Twiggy picture each day is my favorite part of the whole MB experience

    • I have been saying it since Twiggy became the “Western Australian business leader of the year” that the award will go down in history as something that ranks will the bs achievements of Bond and Co in the 80’s. How dumb are we out West…

  2. Expecting Twiggy to be crowned Tool of the Decade very soon.

    Would Forrest the stockbroker recommend shares in his own company at this point?

  3. ICBC calls out Forrest — LOL — Is that like “Abbott shirtfronts Putin”?
    Houses and Holes need to get the chip of his shoulder & leave Forrest alone – trying to save a Co you fought for is not at all bad practice. The other Iron Ore miners ALL pay FA Tax so why cheer for them ?

    • Even StevenMEMBER

      Twiggy is trying to save the workers in his company, or his wealth?

      Either way, survival of the fittest should apply.

      I agree with PFH’s general proposition that IO is Australia’s resource and we should aim for a good outcome for Australia overall. But I am indifferent as to whether Fortescue survives or not. Twiggy gets picked on because he’s a hypocrite.

  4. Mel Moore accidentally makes a good point

    “If they had not added so much tonnage into the market last year,….”

    “The long-range expansions of lower cost competitors have been well flagged since 2008. The high-cost miner’s strategy was to beat these low-cost/better quality tonnes into the market. They now have only themselves to blame.”

    A National Iron Export Volume licence auction would have avoided the problem and can still fix it and would have the added bonus of allowing us to stop “needing to talk about Twiggy”

    • The current IO market gyrations show how archaic are our existing arrangements for managing our natural-resouces based export income.
      Auctioning of Commodity Export Volume licences is an interesting idea for returning more “Producer Surplus” to Australians, the ramifications of such a revolutionary idea (I’m unaware of precedents, although they probably exist in developing countries)) need to be identified, through Q’s such as –
      1) Royalties (ie., a depletion tax, arguably too low on all minerals in Aust., which goes to the States and who may seek to capture more)
      2) Should all commodities, including Gold, be subject to the same licence auction regime?
      3) Income tax revenues (Would a licence auction be a dis/incentive to transfer pricing and other tax-minimising tactics?)
      4) Commodity Export Volume licence auctions might (at last) encourage value-added processing in Australia, but how is the Indonesian ‘experiment’ going?, and do we want jobs in “dirty” industries/externalities?
      5) Would such a regime be equivalent to “nationalisation-by-taxation” of our mining sector?

      • Oliver47,

        I don’t think it is very revolutionary as governments around the world have been controlling exports of key resources for years. Australia still carefully controls who we sell Uranium to and possibly how much as well. I am not sure whether anyone has thought to auction the rights to volume allotments but I am sure it would have occurred to more than a few treasury staff (hint hint Mr Hockey).

        1. States can still levy their royalties and no doubt miners will bid in a way that reflects any fears they may have about states ramping up royalties during the period of an export licence. But generally states seem to be fairly sluggish when fiddling with royalties and the same concerns apply when they do – will a miner shift to a different state.

        2. The approach may be suitable to other exports but a case by case approach is warranted. It is really only necessary when there is a real concern that local producers may in competing against each other under cut a foreign producers lowest price. Iron Ore is ideal because it would be very hard to smuggle out some bulk carriers loaded with dirt.

        3. Not sure whether it would stop transfer pricing tricks but at least the miners cannot get around the need to pay up front for the export volume allotment and competition for those allotments is likely to be fierce – at least while Australia maintains a significant market advantage as a high volume low cost producer. If that situation changes then the bids for the export permits will fall as the gap between the local cost of production and foreign cost of production narrows.

        4. It might well encourage local value adding because clearly iron ore sold to a local steel works would not require an export licence.

        5. I would not regard setting an Export Volume cap and auctioning off allotments as nationalisation by taxation. The miners still remain completely private (at least those not owned in part by foreign government enterprises) and they can sell the iron ore off shore for whatever price they want. The only intervention by the government is setting the export volume – apart from that, the glorious powers of competition in the form of miners trying to produce at lowest possible cost and fight for market share remain intact. The only thing they will find is that they do not get to do it by selling our iron ore at less than it is worth having regard to the foreign competition.

        A few free trade fans have suggested that this is somehow anti-free trade. I don’t think it is any different to a private company with a number of factories producing identical goods preventing those factories from undercutting each other in the market place. Like such a firm Australia simply wishes to ensure that its mining “production units” only compete against the offshore competition and not against themselves.

        It doesn’t even need to own those production units to do so.

        Some have suggested that the Chinese may not take kindly to Australia making decisions as to how much of our iron ore we choose to export. Well that is as ridiculous as it sounds even without regard to Chinese ongoing record as a Master currency and market manipulator (would you like to buy some Chinese rare earth minerals – sorry sir that is not on the menu).

        The main reason there is a an ore glut at the moment is that China is keeping large volumes of much high cost Iron Ore production IN the market. That is blatant market manipulation and far beyond simply setting a National Export Volume cap.

        Had we put a cap in place about 10 years ago and adjusted upwards as required much of the current excess CAPEX might have been avoided.

      • Andrew LeesMEMBER

        Somehow I suspect that that particular bird has flown – the time to auction export quotas would have been before the mining developments began. I suspect that trying to impose such a regime at this time would be politically impossible – anyone recall the “sovereign risk” bogeyman associated with the MRRT? It would smack of retrospectivity also.

      • @Pfh, I like this idea a lot BUT I suspect its unworkable for the IO industry in particular.
        The basic problem is not that the world is short of IO there’s plenty of the stuff What the world is however short of is high grade IO deposits that can be efficiently extracted and exported.

        The first half of this equation (High grade IO deposits) is the resource on which Royalties are paid. However the business of IO mining relies as much, if not more, on the second term namely the efficiency of extraction and export. The infrastructure, machinery, capital and know-how create this efficiency. This efficiency is owned by the miners it’s not morally or legally ours to sell or leverage, furthermore without this efficiency the IO will simply remain in the ground.

        The question on my mind is: Would miners properly develop world beating mining infrastructure IF they had to bid yearly for the right to export IO?

        I suspect you’d see a dramatic reduction in long term thinking and infrastructure build over time this must reduce the operational efficiency of the mine, so I suspect this new Tax of your’s would be quickly lost to operational inefficiency as miners focused on just the task at hand.

        As the IO game is played today, the lowest cost producer is always safe, it’s the guys further up the cost curve that pay the ultimate price for their under investment. Take away the market safety of being the lowest cost producer and I suspect the whole rational for “investing” to create mining efficiency goes out the window.

  5. KlimashkinaSydney

    Can’t really argue against that… want to play in the markets, play by the markets.