Are BHP and Rio Flooding Market with Iron Ore?

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Thursday, October 16th, 2014
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The West Australian premier has again accused BHP Billiton and Rio Tinto of flooding a depressed iron ore market, putting further downward pressure on the commodity’s price.

A week after saying the companies were “flawed in trying to manage the world price of a commodity” and telling them to “remember who your landlord is”, Mr Barnett has lashed them again.

Business and economic logic suggested the “normal reaction” to a falling iron ore price would be to cut back supply, not increase it, he told parliament on Tuesday.

“If you are selling a product into a market and the price is falling and falling at a very fast rate, the normal commercial reaction would be to cut back on supply into that industry,” Mr Barnett said.

“You would normally expect the quantity supplied into the market to fall in response to a falling price.

“I find it a strange policy, indeed a flawed policy, that the major iron ore producers would be putting more and more product into a declining, soft market.

“And I think it will be a failed policy – no doubt about it – and I find it strange that the companies are acting seemingly in a concert way.”

Mr Barnett said it was the latest example of “some sort of arrangement” between BHP Billiton and Rio Tinto, following merger proposals and a plan to meld their Pilbara iron ore operations in 2009, which caused much angst among Chinese steel mills.

“Now we have another variation,” he said.

“I don’t think it’s healthy for the iron ore industry. I don’t think it’s a good policy for shareholders or for those companies and it’s certainly damaging to Western Australia.”

He said he had a right to comment because the state had a direct commercial interest as the owner of the iron ore.

Opposition treasury spokesman Ben Wyatt pointed out Mr Barnett celebrated BHP Billiton increasing its iron ore volumes ahead of schedule with the opening of the Jimblebar mine in April.

“You were positively glowing at that very opening of that mine,” Mr Wyatt said.

“Why are you so shocked and angry that BHP is increasing its iron ore volumes?”

Mr Barnett shot back that the iron ore price was “pretty solid” in April and construction of the Jimblebar mine had started two years earlier.

“The market is nowhere near that at the moment.

“You tell me the logic of pouring iron ore into a depressed market.

“That is not commercially sound.”

The iron ore price has plunged almost 40 per cent this year.

BHP Billiton and Rio Tinto were sought for comment.

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