Iron ore war turns on Twiggy

It’s still not much of a pre-iron ore inquiry debate. There is little or no understanding of how the market works, lot’s of flip-flopping between  false dichotomies and media that can’t think beyond what the companies themselves are saying. But it is, nonetheless, turning against Mr Forrest, at least today.

The confusion is coming right from the top with a Prime Minister that now sets policy according to the prevailing popular breeze:

Just days after stating that “I think we do need an inquiry”, Mr Abbott shifted his language significantly on Tuesday, while opposition in the cabinet hardened over the issue and Coalition support for a Liberal-led inquiry looked increasingly remote.

Prime Minister Tony Abbott says the government hasn’t made any decision on whether to hold an inquiry into the iron ore sector.

Senior Coalition members discussed the matter on Monday night and, in addition to Trade Minister Andrew Robb and Industry Minister Ian MacFarlane, Fairfax Media has spoken to at least two other cabinet ministers who strongly oppose the probe.

Mr Abbott said if an inquiry went ahead, he would not allow it to become a “one-sided inquiry which degenerates into a witch-hunt against some of our best companies”.

“We certainly haven’t made any decision to have an inquiry. This is something that (independent senator) Nick Xenophon was talking about last week,” he said.

And so, everyone man and his dog has equal standing in the debate. A little intellectual leadership might be good. That might help fashion the debate in the national interest, as opposed to leaving it to flackers, flunkies and carpet-baggers. Mr Xenophon is one of those, though I’m not sure which. Yesterday the AFR reported he visited the FMG offices recently, which is a very poor look, and today he seems unable to see the irony:

That is a similar sentiment to that of Senator Xenophon, who is warning the government to be cautious of heeding what he describes as the “hysterical” response from mining bosses.The South Australian senator says he was so encouraged by Treasurer Joe Hockey’s response during a meeting last Thursday that he temporarily dropped the idea of a Senate inquiry, in favour of a joint select committee chaired by a Liberal MP.But he said he could still bring on his Senate motion in June and put up a bill to strengthen competition rules.”It seems that the government appears to be walking away, but the issue won’t go away,” Senator Xenophon said on Tuesday.

Junket Jen at the AFR thinks Forrest has won the debate despite his obvious drivel:

Andrew Forrest is always extremely persuasive. And like the very best salesmen, he’s always totally convinced of the benefits and the potential of what he’s selling so energetically. It’s one of the many reasons he was able to create Fortescue Metals Group from the red dirt up while Rio Tinto and BHP Billiton were still scoffing at his presumption and his ability to become a serious player in the global iron ore industry.

…Forrest now seems to be getting the last laugh, however.

…That’s despite the case put by Rio and BHP – that Fortescue’s actually had the greatest percentage increase in iron ore production in recent years by accelerating from nothing to around 165 million tonnes per annum.

But it’s still Rio Tinto and BHP Billiton in Forrest’s cross hairs – and now in the government’s political target range as well. Sold!

That seems premature. The AFR makes a basic point worth repeating:

The idea that Australia can be a price maker, rather than taker, for our exports is part of the cycle of our economic history. In 1975, when the Organisation of Oil Exporting Countries oil cartel was at the height of its powers, the Whitlam government joined Australia to the Association of Iron Ore Exporting Countries. But that went nowhere, if only because iron ore is globally abundant. Australian iron ore miners generate profits by being more efficient than anyone else at getting it out of the ground and shipping it to customers. Australian miners and politicians should remain focused on that enduring truth rather than being beguiled by conspiracy theories and fantasies about fixing global markets.

And Twiggy himself appeared at the ABC where his performance was very jaded:

LEIGH SALES, PRESENTER: Mr Forrest is with me now from Perth.

On Friday, Mr Forrest, the Prime Minister appeared to back an inquiry, saying, “We don’t want any predator behaviour.” But now today he says, “We wouldn’t want a witch-hunt against our best companies.”

Have you spoken to the Prime Minister or any of the relevant ministers about the change in tone?

ANDREW FORREST, CHAIRMAN, FORTESCUE METALS GROUP: Leigh, I haven’t. I’ve noticed, even from Perth, the amount of energy, the amount of excitement which the multinationals have put into a major lobbying campaign in Canberra and everywhere, all through the papers, to try and avoid an inquiry.

I’ve never seen two quite conservative companies work so hard against the cause of transparency, which I always thought was a good thing for Australia.

LEIGH SALES: So are you suggesting that the Government is bowing to their will?

ANDREW FORREST: No, I don’t think so. I think – look, we have a Government which I think understands that transparency is necessary in good business. And particularly when you’ve had a $90 billion shock to the economy, a $20 billion shock to tax receipts, that an inquiry is proper, good and normal behaviour.

LEIGH SALES: What do you say to the suggestion that you’ve ridden the highs of free markets and capitalism when demand exceeded supply for iron ore and now you’re crying foul when the opposite happens and asking for Government intervention to prop up your business when it can’t compete?

ANDREW FORREST: Oh, look, I think, I think, Leigh, that’s playing the man. The guys have done that all the time. They’re playing the man and not the ball.

The ball is simply that we’ve had, actually, a balance stockpile. We’ve had buyers equalling sellers. In fact, mostly, Leigh, we’ve had more buyers than sellers. We’ve seen the stock of iron ore reducing in stockpiles around the world. So you’d think that, actually, the price would be pretty good.

But, Leigh, the price has collapsed. And the price has collapsed because of the statements made repetitively – so many times – by the multinationals that they’re going to drive the volumes up and the price down.

LEIGH SALES: But the prices have collapsed also because demand from China has fallen. It’s a simple demand and supply question?

ANDREW FORREST: Actually, Leigh, we’ve got to judge the physicals, not people’s words and statements. The physicals is what we can rely on. The stockpiles in China have come down. They haven’t increased. Over all this oversupply talk, they haven’t increased.

So why has the iron ore price collapsed? That’s the question which I think the nation should be allowed to ask. It’s a fit and proper question and we should get the answers.

LEIGH SALES: If you look at Australian history, though, it’s full of recurring commodity booms and inevitable busts: from gold to wool. Isn’t it just the natural law of capitalism and free markets?

ANDREW FORREST: We’ve not seen a commodity as important ever to Australia as the iron ore industry is now. This is $95 billion a year into this economy. Every $1 it falls pulls $800 million, $900 million. For each dollar out, $300 million in tax receipts.

So it’s fair enough: when you talk about gold, wool, et cetera, that came down over years. We’re talking an iron ore price which has come down by half to two thirds in six months. We’ve never seen a crash like that and it’s fair enough we find out why.

LEIGH SALES: Gina Rinehart is opening a iron ore mine that will produce 55 million tonnes of iron ore in the second half of this year. It’s called Roy Hill. Should she abandon that?

ANDREW FORREST: Look, those expansion numbers have been baked in for years and years now. I wish the Roy Hill people all the best with that project. I know what operating costs are for projects like that. It’s going to be very tough and I’d like them to stick it out, just like I came in to support Atlas with everything I could when I heard they were doing it tough. I wish Roy Hill all the best.

LEIGH SALES: Well, why shouldn’t BHP and Rio Tinto be able to produce whatever volumes they choose?

ANDREW FORREST: Look, they can. And you’d think stockpiles would be going up, Leigh. But stockpiles have been going down, so actually supply hasn’t kept up with demand.

So why has the price collapsed? Why have we pulled $90 billion out of the Australian economy? Why have tens of thousands of people lost their jobs when, actually, stockpiles have been decreasing? Well, that’s because of the impact which statements made of oversupply and driving out competitors, continuing to produce those forward looking statements, Leigh, is what I believe has collapsed the iron ore price.

Now, let’s not take my word for it. This is valuable to every single Australian, Leigh. Everyone is impacted by this. Let’s have an inquiry. Let’s find out the answers and be transparent. I’m asking for transparency.

LEIGH SALES: But there has already been an inquiry. The ACCC’s looked into allegations of misconduct and predatory pricing between BHP and Rio Tinto and found that they were baseless?

ANDREW FORREST: Oh, they actually haven’t, Leigh. The ACCC does not have jurisdiction outside of Australia. I mean, you might hear some prattle about white goods but we all know that the iron ore price is $200 or 10. The dishwasher is going to cost about the same.

Where this is happening is offshore. Where the markets have been so seriously affected is offshore. Now, the Australian Consumer Competition Council: that’s got no jurisdiction there. We need a parliamentary inquiry. There is no body which has that jurisdiction.

LEIGH SALES: Why do you think a parliamentary… Why do you think a parliamentary inquiry would have the jurisdiction into what’s going on offshore?

ANDREW FORREST: Oh, because it can go government to government. It can find out how these markets work. It can find out what offshore consumers – because the ACCC has got no power there – Australian governments can find out what offshore consumers think. And they will get those answers and they will get them on the record and on oath. And that’s the kind of transparency, Leigh, which I think our industry needs.

Now, let’s remember, Leigh: we’ve never had this transparency. Other industries have but the iron ore industry – now the biggest in Australia – has never had this transparency and it’s overdue. And those companies which are fighting that inquiry for everything they’ve got: they’ve got to think about what are they doing? They’re actually stopping Australians knowing the information they should know.

LEIGH SALES: You’re talking about transparency, but another way of saying that is Government intervention. In 2010 you were one of the most vocal campaigners against Government intervention in the resources sector in the form of the mining tax?

ANDREW FORREST: No, Leigh, I’ve been painted up with stars and stripes and bells as an interventionist. I’m not an interventionist.

LEIGH SALES: I remember you standing on the back of a truck, dressed in high-viz gear?

ANDREW FORREST: That’s right. So… Exactly, Leigh. So I’m not an interventionist. I stand on my record. But, Leigh, I am an insider to this industry. I do know what’s going on in this industry and those questions need to be answered.

We need to ask: how is it OK for one company that I compete with can shift $5 billion offshore, pay no taxes on it – I don’t know about royalties, Leigh – but pay no taxes on it and then say, “Well, everything’s OK. This is a level playing field”?

Or, Leigh, how can they say that they’ve got nothing to do with the iron ore price collapsing when it’s them who have threatened the oversupply for months and months and months, nauseatingly repetitive comments which drove the iron ore price down? These are Australians…

LEIGH SALES: So what you’re asking for is regulation?

ANDREW FORREST: No, Leigh. I think we need transparency. I think Australians need to know the answers.

Sure, if there’s savage misdemeanours then, of course, any good country would cop regulation. But I believe transparency itself will correct bad behaviour, will inform companies that this should never happen again.

If you want to play with markets, which the Australian people rely on to be healthy, well, be careful about it because the public will be watching. And the public hasn’t watched this, Leigh, and it’s overdue. It’s now time for the public to watch.

LEIGH SALES: Andrew Forrest, thank you very much for joining us this evening.

ANDREW FORREST: Thank you, Leigh.

I count eight huge…ahem…inconsistencies in there nicely exposed by Ms Sales:

  • BHP and RIO are guilty of lobbying (but Mr Forrest’s inquiry push is not?);
  • attacking FMG for expanding is playing the man but attacking BHP and RIO for doing the same thing is not;
  • cherry-picking data about falling Chinese iron ore stockpiles over annual steel production falls;
  • juniors are awesome for expanding but not majors;
  • saving Atlas when it is his own deluge of sub-par iron ore that is killing it (Atlas also has sub-par ore);
  • there’s no reason the ACCC wouldn’t cover the iron ore offshore market as context;
  • argues for transparency while blowing all of the above smoke, and
  • abhors regulation while implicitly putting the case for it.

To be honest, anyone convinced by that should give me a call. I’ve got a really nice bridge going for a song. It would look lovely spanning the space between your investment properties, Mr Xenophon!

 

Houses and Holes

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