Column: Demand weakness helps cushion tin from supply problems
Tin demand last year was weaker than expected and is on course for only a modest recovery in 2024, according to the International Tin Association.
Australia’s Prime Minister Tony Abbott says inquiry is necessary. (Image via WikiMedia Commons)
Australia’s Prime Minister Tony Abbott has backed a special parliamentary inquiry into the country’s iron ore industry, saying it was important to discover whether BHP Billiton (ASX:BHP) and Rio Tinto (LON:RIO) have behaved in a “predatory” way, severely affecting the economy.
Abbot said he believed it was necessary to pin down the exact facts behind sharp falls in prices for the country’s main export.
“I’m not in the business of demonizing any company because I’m very conscious of the fact that Rio and BHP are Australia’s biggest corporate taxpayers,” he said in a radio interview Friday. “I want them to continue making a lot of profits here in Australia.”
Joe Hockey, the treasurer, also had something to say about the issue, noting that the dramatic drop in the commodity prices has had a “big impact” on the country’s budget bottom line. He illustrated the point by adding he had been forced to write down A$90 billion in revenue in the past 18 months.
The authorities comments come on the heels of senator Nick Xenophon’s Thursday decision to pull a vote that could have launched the looming probe, which was triggered by an ongoing verbal dispute between Fortescue’s Metals Group (ASX:FMG) chief executive officer and founder Andrew “Twiggy” Forrest, BHP and Rio Tinto.
Probe to “expose” Forrest
Fortescue’s Metals Group chief executive officer and founder Andrew “Twiggy” Forrest stirred the waters early this week.
Prices for the steel making material hit $46.70 a tonne in April, the lowest in a decade, though they have picked up since then to around $62 this week.
Top producers Rio Tinto and BHP, the world’s No.2 and No.3 iron ore producers respectively, have been flooding the market as of late, which has left smaller, high-cost producers struggling to survive.
Early this week, Forrest asked Australians to “bombard” their members of parliament (MPs) to demand the government intervention to stop the big miners expansion plans.
Hours later, the company launched a website called Our Iron Ore this week, seeking to drum up support for his war on Rio and BHP, the world’s second- and third-largest iron ore producers respectively.
“Iron ore is Australia’s most important single export earner and a dramatically falling price is putting significant pressure on current and future living standards of all Australians,” the home page says under the tag: “Damaging our economy.”
The Minerals Council of Australia, which has staunchly opposed an inquiry into the matter, said in a statement Friday that while a probe was arguably not the most effective use of parliamentary resources, at least it would expose false claims made by Forrest.
“A focus on facts rather than rhetoric will enable a rational consideration of the importance of free and open markets and the dangers of interventions in favour of selected producers,” concluded the council’s chief executive Brendan Pearson.
Source: Metal Bulletin Iron Ore Index.
7 Comments
golddigger69
Blow Tony Blow–This guy couldn’t understand a fart, let alone a major crap like this.
The people RIOIO and BHPIO were trying to squeeze were the Chinese–the world’s largest IO producer. Recall all the reports in ’13 and ’14 that talked about how high the Chinese cost curves were: Lots of production at $100+ per tonne. I am sure the thought was “if we can get them out of the game, then we can run the show, and all our expansions will pay off”. No one was worried about the 10 Mtonne producers here in Oz, it was all about putting Chinese (i.e. 800 Mtonne) producers out of business. But they (RIO BHP) didn’t understand how China works–Mercantilists vs Capitalists. China can’t afford to put all those inefficient miners out of work, too destabilising. So they found ways to prop up those mines that are unprofitable (what ever that means in a State-run economy), and so the supply from China never was seriously reduced. Supply and demand still had to balance somewhere, and it was in the price paid for external ore, and the “market” price cratered. Just look at who the real winner is here? It was likely much cheaper to let the big boys (and girl) drive the price down than pay the subsidies.
If you want to investigate something, it would be Chinese subsidies, not the buffoons at BHP and RIO et al. who can’t understand China, the major market player.
Now please send me the check for costs of your boondoggle investigation, PM Blow Hard.
kris
I think you are forgetting about quality of product too golddigger69. Do you know the difference in ore quality between poor quality Australian ore vs the quality China producers? Do you know what effect this has on the blast furnace?
Australian ore will always be in demand due to close proximity to market vs Vale material (despite their higher quality) and the blast furnace requires a consistent feed…i.e. if they feed crap quality chinese ore into the blast furnace they need better quality to counteract. I think the game is a little more complex than the simplistic high level view you have shown there….its not as simple as an economics game.
golddigger69
Yes, I know the difference between their ore and the sweet 62% from the Pilbara (I think you miss typed when you wrote “poor quality Australian ore”–I’ll forgive you, and yes I have seen Chinese “deposits” as well). The people you need to ask that question of are the ones running state-controlled enterprises, e.g. the Chinese. Their game is not about quality (does made in China strike you as the same as Gucci or Armani?), but social stability. It doesn’t matter if you need to reline a furnace, it employs more of the minions
Michael Small
PM–sucked in by Forrest and Australia’s Senator of political correctness! Have a look Nick and you might find your halo has rusted!
scrappy
What weak governments we have if Australia is reliant on iron ore and coal for our survival 20 years ago iron ore was nothing to Australia so Mr Abbott pull your head in and find alternative sources of revenue ie like putting industry back into the country.We are rapidly coming from the best country in the world to the worst.
Ryan
The problem is that the general population of the country don’t understand the truth of the matter. You have someone like Andrew Forrest telling the country that the big guys are being bullies and it is affecting all of us. The general population will listen and blindly accept his word and then turn on the government saying they have to do something about it.
As a general rule, the government should keep their fingers out of the private sector, but if their only goal here is to find some facts and show the Australian population what is going on, then so be it. At the end of the day, tax dollars come from exporting ore. It doesn’t matter who is putting that ore on the ship. BHP and Rio Tinto are just doing business. Squeezing out competition is what business is all about.
Gus
Just a question what happens when the gas well run a end in qld, isn’t the land unable to regrow its natural resources and the fore kill our meat industry, aren’t we already governed by the other countries, by them importing meat which is cheaper then our own, so once than is taken all that’s left is the left over land witch may not be unsalvageable? Please put me on the right path