Australia's regulator goes after Fortescue for demanding iron ore output cap
Australia's competition regulator is investigating comments made by Fortescue Metals (ASX:FMG) chairman Andrew “Twiggy” Forrest challenging Rio Tinto (ASX:RIO), BHP Billiton (ASX:BHP), and Vale (NYSE:VALE) to end their current production increases.
Speaking at an Austcham business dinner in Shanghai, Forrest said he was happy to cap Australia’s third biggest iron ore miner’s production in order to see the price of the commodity jumping back up to US$90 a tonne.
But his comments were unwelcome by the Australian Competition and Consumer Commission (ACCC), which announced Wednesday it would investigate Forrest's remarks.
Attempting to cap or fix prices is illegal in Australia, where individuals involved in cartel behaviour face penalties of up to 10 years in jail, and companies are charged with heavy financial penalties.
“Ultimately, any success in increasing the price of iron ore in an anti-competitive way would be expected to lead to an increase in prices that Australian consumers pay for items such as white goods and cars,” Rod Sims, chairman of the ACCC said in the statement.
In a statement to the ASX, Fortescue’s chief executive Nev Power defended Forrests' comments and said "Economics 101" demands a change in strategy:
The comments made by the Chairman were highlighting the point that a last man standing fight for market share will damage shareholders of all companies and is not in the long term interests of our host nation Australia nor of our customers and those comments were intended to draw attention to the fact that there is provision in Australia's competition law dealing with the potential for discussions to be held by exporters.
Forrest’s comments come as prices for iron ore — Australia’s main export — have dropped 70% since reaching a peak of about $190 a tonne in early 2011. That has put heavy pressure on miners, including Fortescue, lately costing it the chance to issue debt. Its $US2.5 billion bonds were pulled from sale last week due to lack of investors interest and the company is now exploring other options for refinancing its $9 billion in debt that begins maturing in 2017.
Image: Screenshot from interview posted on YouTube.