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Fortescue's Andrew Forrest calls for iron ore production cap
- Mar 25 2015 at 7:15 AM
by Lisa Murray
Andrew "Twiggy" Forrest has called on the world's big iron ore companies to announce publicly a cap on production in a bid to arrest declining prices, which have slumped more than 50 per cent over the past year.
At a business dinner in Shanghai on Tuesday night, Mr Forrest, founder of the fourth biggest iron ore exporter, Fortescue Metals Group, said he was "absolutely happy to cap my production right now" at 180 million tonnes.
He said the other major players, Rio Tinto, BHP Billiton and Brazil's Vale should also cap their production "and we'll find the iron ore price goes straight back up to US$70, US$80, US$90."
"I'm happy to put that challenge out there, let's cap our production right here and start acting like grown-ups," he said.
Iron ore prices slumped to below $US55 at the end of last week, the lowest level since at least 2008, when records began. Fortescue, meanwhile, was forced to scrap a $US2.5 billion high-yield bond issue, triggering a steep drop in its share price. The miner has been hit by reduced demand for steel as China's economy slows, which comes at the same time as the big players ramp up production, prompting concerns of a glut in supply.
Mr Forrest said even China, which is benefiting greatly from lower commodity prices, is questioning why "we are ruining this market."
"You can see China thinking….it's really nice that we've got a low iron ore price but where does it go?" He said steel mills in China were concerned about eventually being left with only a few players to buy from as smaller iron ore producers would be priced out of the market.
"Competition is a really great thing," he said.
Fortescue will hold a board meeting in Shanghai on Wednesday. After that, Mr Forrest is heading to the Boao Forum, an annual meeting of political and business leaders, in China's Hainan province.
One of the panels at the forum will discuss the controversial Asian Infrastructure Investment Bank, a China-led initiative which has attracted the support of more than 30 countries but faces opposition from Japan and the United States. Washington initially lobbied Canberra not to join due to concerns about governance structures and China's motives in setting up the bank but Australia is now expected to sign up before the March 31 deadline in order to achieve "founding membership" status. Last week Britain, France and Germany all applied to be members.
Mr Forrest joined a growing chorus of business leaders urging Australia to participate. He questioned whether opposition to the bank was "really about regulation and governance or is that more of an American-centric concern about the projection of soft power."
"Australia needs to be independent in this part of the world," he said at the AustCham Shanghai event.
"We don't need to treat China as the enemy. We should listen very carefully to Japan. We should listen very carefully to our best friend North America and understand that we have many best friends."
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