Mr Forrest please amalgamate with Glencore, the chinese whoever (apart from rio/bhp) dont really care and stick it to em, ramp up to 300mtpa, my dream is to see bhp collapse
Fortescue's Andrew Forrest says Rio Tinto, BHP Billiton face iron ore 'prisoner's dilemma'
"This is the market share, boom and bust argument so typical of our industry," says Fortescue Mining Group CEO Andrew Forrest. Erin Jonasson
byMatthew Stevens
Andrew Forrest says his Pilbara iron ore competitors, Rio Tinto and BHP Billiton, are "stuck in a prisoner's dilemma" in pursuing expansion that will throw more tonnes into an already-glutted marketplace.
Speaking from China, Mr Forrest said he stood by comments made in Shanghai on Tuesday evening that have resulted in the ACCC investigating whether the chairman of Fortescue Metals has breached the Competition law.
At a private dinner, Mr Forrest offered to put a cap on Fortescue's production if others would do the same and suggested a more-controlled approach to overall production would help prices recover quickly.
"If you have read my comment given in a Chatham House Rule private environment in a private club, then I can say I am not stepping back from them at all. They were driven by the market share over shareholder value argument that we are in right now," Mr Forrest told The Australian Financial Review from China.
"I just put the very simple argument that when we flagged our expansions in 2009-10, we were in a rising market and we spent the capital we did into that rising market. But the pursuit of market share and overall revenues has people now saying we could make 20-40 per cent per incremental tonne here so let's put it out there.
"But what about overall revenues? Hold the phone. It is like Jimmy (Wilson, president of BHP Billiton iron ore) said, he has spent $US25 billion ($32 billion) of expansion and Sam (Walsh, Rio Tinto chief executive) has spent about $US35bn on expansion that are the size of Fortescue and we have spent only $US18 billion. They are continuing to spend tens of billions into a falling market. So you are going to have to justify yourself and say that this is value creating. But what about your overall revenue base? It is falling because prices are falling. Then you are making a huge error.
"Yet sympathetic Australian media are still supporting them. This is the market share, boom and bust argument so typical of our industry."
Mr Forrest's competitors justify their strategy by saying that they are making 50 per cent margins on the tonnes they sell, that their long-flagged expansions will produce the lowest-cost tonnes when they are run at full capacity and that if they withdrew tonnes all that would happen is that the higher prices that might follow would only lure replacement production into the market and prices would fall again.
"It is a fallacious argument," Mr Forrest said.
"It hasn't happened in coal. Glasenberg (Glencore CEO Ivan Glasenberg) withdrew a significant amount of coal form the market, no one stepped in. The producers are terrified, trapped in that prisoners dilemma that says it you don't do it, someone else will, so they keep driving production into a market of falling prices. All I can say is that this theory destroys shareholder value."
Mr Forrest says he is "absolutely" confident that section 51 (2) (g) of the Australian Competition and Consumer Act allows him to propose the production cap he has floated.
"It is an exemption encouraging Australian exporters to act in Australia's interest. This was a Chatham House Rule dinner and my comments were in response to a question put to me buy a member saying, 'Mr Forrest, surely we can all act like grown-ups, why would you or any other producer aggressively expand into a market with a falling price?'
"Is it common sense," Forrest said. "Unlike Fortescue, who flagged growth in a rising commodity market, to come two years after Fortescue and be rapidly spending major capital and making comments that you are doing it and being proud of you are doing it, that is going to be destructive of shareholders' value."
(20min delay)