Australia ditches iron ore probe after lobby, China-Brazil supply deal

Australia ditches iron ore probe after lobby, China-Brazil supply deal

Australia’s Federal Treasurer Joe Hockey.

Australia’s government has decided to dump plans to conduct a special parliamentary inquiry into its iron ore industry, following a supply agreement between China and Brazil that could drag prices even lower, further affecting the country’s economy.

“We certainly haven’t made any decision to have an inquiry … the last thing this government would ever want to do is interfere in a free market like the iron ore market,” Prime Minister Tony Abbott said in a brief statement Thursday.

Announcing the decision, the treasurer Joe Hockey said that “after discussing the issue with regulatory bodies and stakeholders across the resources sector, the Government will not be initiating an inquiry at this time.”

The move comes on the heels of a fresh deal between China and Brazil, which puts at Vale’s (NYSE:VALE) reach up to US$4 billion to finance its $16.5 billion expansion of its iron ore mines.

According to the chair of the Australian Latin American Business Council, Jose Blanco, the agreement also implied major Chinese investment in several of Vale's giant iron ore carriers, known as Valemax ships, which can move vastly more resources and reduce transport costs by around 25%.

The Brazilian company, the world's No. 1 producer of the steel making ingredient, is forecast to crank up production from current levels of 330 million tonnes to 450 million tonnes of iron ore by 2018. The figure is greater than the combined output of BHP Billiton (ASX:BHP) and Rio Tinto (LON:RIO).

Lobby

Australia’s decision also follows intense lobbying efforts by BHP and Rio Tinto, which warned such a review would have sent a bad signal to Australia’s trading partners about potential government intervention in the market, while giving a “free kick” to competitor Brazil.

The Minerals Council of Australia, which staunchly opposed to the inquiry since day number one, welcomed the decision saying it was a “good” one, as it “will enable Australia's iron ore sector to focus on the task of further strengthening its competitiveness in a fiercely contested global market.”