Iron Ore Watch: Guess who wants to buy Twiggy?

To read the original version of this comment in the original context at Macrobusiness.com.au click this link. (link maybe locked – but there is a free trial available).

News reports in the AFR and commentary at Macrobusiness suggest that Chinese interests have made FIRB applications to buy up some chunks of our iron ore industry in the form of FMG now that it is struggling for breath as our mining industry competes against itself on the world market.

If these reports are true they cast an interesting light on the media campaign by Twiggy in recent weeks and confirm that we need an open inquiry into Iron Ore but not because Twiggy wanted it – perhaps despite the fact that Twiggy was asking for it.

Some have suggested that Australia is being played and they are right but the truth is our leaders put on the tutu and started skipping around the stage before the orchestra sounded a note.

We are most certainly being played and have been ever since we got this crazy idea that one of our major resources could be managed by reference to ‘free market’ principles instead of the national interest.

It doesn’t really matter which mining companies we employ to dig up our dirt they are just contractors.

It doesn’t matter if they come from London, America, South Africa or even China.

What matters is how much they are allowed to dig up and export and how they pay for the right to do so.

And when you think about it in those terms the answer is straightforward. National export volume caps with the miners bidding for volumes within those caps.

As that Brazilian article I linked to last week made clear, China manages what resources it will allow into the international market all the time.

Australia has a simple choice be ‘free market’ fanatics and sell at OUR marginal cost of production or be a smart manager of its national resources and ensure that we never compete against ourselves on the world market.

Now more than ever we need a Proper Inquiry into the Iron Ore industry.

One thought on “Iron Ore Watch: Guess who wants to buy Twiggy?

  1. http://www.macrobusiness.com.au/2015/05/lessons-dead-twiggy-inquiry/#comment-1339337

    One of things that has been interesting about this whole debate is the almost complete absence in the Australian media of what the attitudes in Brazil might be towards the fall in the iron ore price and Brazil and Australia’s shared interest as the lowest cost producers from limiting in some way the tendency of their domestic miners competing among themselves, undercutting the rest of the world, and driving international prices to the lowest cost of production.

    The language gap is probably the main impediment as we Australians tend not to do foreign languages if we can avoid it. But then we probably assume that if we are happy being a big quarry they must be overjoyed at the idea – what being a developing country and all.

    The idea that Australia and Brazil have very strong shared interests in this area is simply beyond the forelock tuggers down under who prefer to cringe and quake about what the big boys might think.

    This article (in Portuguese and translated) found by Mig is interesting as it suggests that the Brazilians have had concerns for some time about remaining simply a quarry for China. Unlike Australia they seem to aspire for something more and perhaps more importantly understand that you may need to do more than simply cling to kindgarten ‘free market’ thinking to see it happen. Brazil has this idea that if they combined their low cost ore with low cost energy they might actually be able to produce steel themselves rather than simply import it all from China – weird huh. Possibly their desire a few years ago to limit foreign trade rivals (the currency war club) manipulating their exchange rate upwards may have had something to do with that as well.

    The article discusses the extent to which a country can limit or manage its exports of iron ore and other resources and remain consistent with World Trade rules. It talks about historical practices and in particular the fact that Chinese does it all the time in order to ‘manage’ the terms on which its resources enter the world market or at all.

    A not surprising aspect of the article is that some developed countries are very opposed to commodity producing countries doing anything that may allow them to sell their resources at more than their marginal cost of production.

    “Don’t even think about shifting from colony status fellas”

    Worth a read

    Like

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