Every swing in commodity prices has winners and losers, and those who produce, buy or trade in such materials accept that reality without demur – while making provisions to minimise the effects on their bottom lines. Except, apparently, Andrew Forrest. The Fortescue Metals Group chairman has complained for months that expanded iron ore production at mines owned by BHP and Rio Tinto has accentuated recent declines in world prices, damaging FMG's profitability, driving some smaller producers to the brink, and depriving the Commonwealth of billions of dollars in revenue. Late last week, Mr Forrest looked to have secured Prime Minister Tony Abbott's support for a parliamentary inquiry into iron ore prices, although the subsequent appearance of divisions within cabinet about whether an inquiry is appropriate or warranted seem to have taken the edge off Mr Abbott's initial enthusiasm.
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Mr Forrest's success in getting the Prime Minister to flag an inquiry is a credit to his powers of persuasion, the more so as it is plainly self-interest that motivates him. It was only five years ago that Mr Forrest and his fellow mining magnates and executives pilloried the Rudd government over its plans to introduce a resources profits super tax. For Mr Forrest to now be seeking Parliament's co-operation in a matter directly affecting the profitability of a company of which he is a major shareholder will strike many Australians as impertinence writ large. That said, his argument that BHP and Rio are extracting and processing publicly owned assets and should therefore be obliged to ensure taxpayers receive the maximum possible return has a certain underlying logic.
In fact, BHP and Rio are under no obligation whatever to Australian taxpayers beyond what state and federal governments deem appropriate for allowing them to exploit non-renewable resources. The primary obligation of both companies is to their shareholders. Some of these part-owners might ponder, however, the wisdom of ramping up production just when prices (and therefore profits) are softening.
Both companies maintain their expansion plans were set in motion years ago, that they are about maintaining market share, not driving high-cost miners out of business, and that world prices are determined in a globally competitive market place. Perhaps. But Rio and BHP are the two largest iron-ore producers in the world, and their ability to influence the market cannot be under-estimated, even if their executives state otherwise. Saudi Arabia and its Gulf allies have had little trouble in ramping up global oil production and depressing prices, the better so it's claimed to render the exploitation of rival petroleum reserves (including shale) unprofitable. Many industry observers attribute similar motives to Rio and BHP.
Some the criticism directed at Mr Forrest's crusade – such as that it threatens Australia's reputation for free and open markets – verges on the inane. Those critics are correct in asserting, however, that the federal government has no ability to influence iron ore prices. This might explain Mr Abbott's sudden display of cold feet. Nonetheless, there is a solid case for parliamentary scrutiny of how returns on Australia's non-renewable resources might be maximised for the common good.
