Disaster, page-12

This extract by Alan Kohler, from the Business Spectator

...."But this time the terms of trade, and therefore national income and, to some extent, the fate of the government, are being caught in the crossfire of an apparent plan by BHP Billiton and Rio Tinto to enhance their iron ore market shares at the expense of Chinese miners.

As discussed a fortnight ago (Iron ore miners’ war of attrition, August 25) the big three iron ore producers — BHP, Rio and Vale — are responding to the falling price by increasing production, not cutting it as they normally do when prices fall, and as any self-respecting global commodity cartel would do.

Nothing is being said, but this appears to be designed to drive the high-cost, underground-mining, Chinese iron ore producers out of business, so that BHP, Rio and Vale can divide up their 30 per cent per cent of Chinese iron ore demand between them, and thence entirely control the market.

Two weeks ago the iron ore spot price was $US92 a tonne. Now it’s $US83 and not looking flash. The Chinese miners, along with the smaller high-cost Australian ones, are taking on water and listing to the side. One of them, Western Desert Resources, replete with a glittering board, has sunk, all hands lost.
This is perfectly sensible business bastardry by the big three miners, but the result may be that another gap opens up between demand and GDP in Australia, and this time it won’t be a nice gap."