Ignorance pushed iron ore market into ‘dance of death’ – by Tess Ingram (Sydney Morning Herald – June 9, 2015)


Former Fortescue Metals Group chairman Gordon Toll says the heads of the world’s largest iron ore miners have exhibited “appalling ignorance of major economic market structures” and have created a global “debacle” that could last for decades.

Mr Toll, who now heads locally-listed magnetite hopeful Royal Resources, served as chairman of Fortescue from May 2005 to March 2007 while the company was in its development phase.

Adding his name to the list of prominent critics of the miners’ expansion strategies, Mr Toll said he was shocked shareholders of BHP Billiton, Rio Tinto, Vale and Fortescue had remained silent while their companies pressed ahead with expansion plans which would depress prices.

“The first thing is why are the shareholders not screaming and I think that’s part of the second thing which is both the executives of these companies and the shareholders are showing massive ignorance of major economics and market structures,” Mr Toll told Fairfax Media.

“I don’t believe Jimmy Wilson or Andrew Harding, any of those people, ever believed they were going to drive the iron ore price down to where they have driven it but that is because they do not understand major economics.”

The iron ore spot price peaked at more than $US180 a tonne in 2011, but has plummeted in the past 18 months to a year-low of $US47 a tonne in April. Iron ore was trading at about $US64 a tonne on Tuesday, as Goldman Sachs and Royal Bank of Canada reiterated to clients they expected the recent rally to be short-lived, with both banks expecting prices to fall back towards $US50 a tonne due to sustained levels of supply.

Fortescue and other iron ore miners have accused BHP and Rio of continuing to push tonnes into a depressed market in order to drive smaller players out of the sector. Fortescue’s chairman Andrew Forrest argues the companies’ public stances on expanding regardless of the iron ore price disconnected the price from traditional supply and demand levers and caused it to plummet.

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