Andrew Forrest: Iron ore glut ‘vandalism’ over
Andrew Forrest has declared the ‘overproduction’ of iron ore by majors BHP and Rio is ending.
Fortescue Metals Group chairman Andrew Forrest has declared that the “overproduction” of iron ore by majors BHP Billiton and Rio Tinto is ending but not without damage to the industry.
His comments come as the price of iron ore holds above $US58 a tonne, more than double its recent low.
“I am not a bull on the iron ore price,” Mr Forrest told The Australian. “The vandalism of the oversupply strategies which I called out a year ago is being vindicated.”
In a wide-ranging interview on China’s Hainan Island before the opening of the Boao Forum, Mr Forrest hinted that last week’s announcement about the retirement of Rio chief executive Sam Walsh may have been because of a shift in strategy by the Rio board away from maximising production.
“You can see the ramifications now in the changing of the guards in a new era of value over market share,” Mr Forrest said.
“That is a good thing but that damage will take a while to work its way through the system.”
Mr Forrest said the damage caused by a volume focus on iron ore over the past few years “didn’t have to happen”.
Rio’s iron ore chief executive, Andrew Harding, last night dismissed Mr Forrest as “again inventing a narrative”.
“There is no substance whatsoever to the claims he has made about the changes at Rio Tinto and the company’s long-held iron ore strategy, which has always been in the best interests of our shareholders,” Mr Harding said.
“FMG have added more iron ore supply to the seaborne market than any other individual company over the past five years. They have recently announced a plan to join with a Brazilian company that could add even more tonnes.”
BHP and Rio have stepped back, both in rhetoric and actions, in the past year when it comes to supplying the iron ore market.
While still expanding, Rio produced 20 million tonnes less in 2015 than it had originally planned, while BHP, like Fortescue, has held production steady.
But Vale is about to bring on its S11D project in Brazil, which could add another 90 million tonnes to the market, while Gina Rinehart’s Roy Hill project is set to ramp up to 55 million tonnes.
What irks the two majors when Mr Forrest talks of restraint is that Fortescue, which is operating at full capacity of 165 million tonnes, has added more supply faster than anyone else during the boom before hitting its current output.
Iron ore, which ranks as Australia’s biggest export, was the mineral commodity least expected to rebound in 2016. But it has done so with a vengeance.
The steelmaking raw material has bounced $US21 a tonne since its December low of $US37 a tonne to $US58, a gain of 56 per cent. Brokerage UBS said yesterday it was expecting iron ore to average in the mid-$US40s a tonne through the year, which is well above a break-even point for major players.
Mr Forrest said FMG had made no new plans to expand its iron ore production after 2010 as it felt it would lead to “self harm”. He said the oversupply strategy of the majors was bad for Australia and China as it had led to a loss of jobs in Australia and also encouraged overcapacity in steel production in China.
“The oversupply is not a good thing for China. Overcapacity is a bad idea whose time has come and gone. We now have a more balanced approach to supply and demand,” Mr Forrest said.
He rejected suggestions that Chinese iron ore buyers might not be pleased with FMG’s recent announcement of a memorandum of understanding with Brazilian iron ore giant Vale.
He said the agreement by both companies to work together would lead to higher-quality iron ore.
“The Chinese see that it is an increase in choice, not a decrease in choice,” Mr Forrest said.
He said the agreement was not one where “we were going to swallow Vale or they were going to swallow us”.
“The strength of FMG and the strength of Vale is very important to China. Having four big producers is so much better than two,” he said.
Mr Forrest said the Chinese were “delighted to see” FMG “consolidating its revenues and its balance sheet and becoming stronger every day”.
On domestic issues, he said he was pleased that there could be an election that might bring more “certainty back into the system and reduces or eliminates those people who were not representative at all of the Australian people”.
He said the uncertainty had also been having an adverse effect on foreign investors’ view of Australia.
“The two things which people constantly shake their heads about is the self-harm of the deliberate oversupply strategy (of iron ore),” which he said belonged to “an era which has passed”.
He added: “And what we need to consign to the dustbin just as urgently is unrepresentative macro influences by people who are totally unqualified and certainly unrepresentative to act for the Australian people.”
Mr Forrest also spoke out at what he described was the “dishonesty” in some sectors of the union movement.
“We cannot have an Australia which has dishonesty in industrial relations. It just can’t happen. Industrial relations has a real role to play,” he said.
“We have seen wanton dishonesty in the industrial relations system, right throughout the union movement.
“I have seen it with my own eyes and I know how destructive it is for the workers who are the ones who ultimately suffer.”
Additional reporting: Barry Fitzgerald
Glenda Korporaal is in China as a guest of FMG.
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