Illustration: Michael Mucci.Illustration: Michael Mucci.

Fortescue boss Andrew Forrest called for an inquiry into iron ore. Tony Abbott and Joe Hockey thought it was a good idea at first. After a brutal lobbying campaign by BHP and Rio, however, they knocked the idea on the head.

Yes, plunging iron ore prices may be wiping billions from the economy. Yes, there may be allegations of predatory pricing by the majors to wipe out Fortescue and others. Yes, the majors and their PR outfit the Minerals Council did pay lip-service to transparency and open debate on iron ore, at first.

Late last week though, they descended on Canberra in their hordes demanding ministerial briefings. By Thursday evening this week they had killed it off.

The logical question here is: why would you oversupply, knowing that oversupply means falling prices? Photo: Reuters

No big deal, there are far more important inquiries at hand. The parliamentary inquiry into a fence, for instance, proceeds apace. For those keen to attend, its official title is the Parliamentary Inquiry into the Proposed Parliament House Security Upgrade Works.

Mind you, this is not an inquiry into any old fence. This is the proposed fence to be erected around the Prime Minister’s entrance to Parliament House. It is the prince of fences. Perhaps it may even be honoured as The Fence of Sir Prince Phillip.

Then there is the Parliamentary Inquiry into Regulation of the Fin-Fish Aquaculture Industry in Tasmania. Why squander valuable taxpayer resources on an inquiry into the commodity most to blame for the forecast $50 billion drop in Australia’s tax receipts, when you can hold an inquiry into fish?

As BHP chief Andrew Mckenzie told ABC Radio on Tuesday this week, the iron ore inquiry was “red tape, pure and simple”.

“This is a ridiculous waste of taxpayers’ money on providing a basic economics course on supply and demand,” he said.

It may be true that for every dollar the iron ore price falls, it costs the economy roughly $800 million. It may be true that in the month of March, the 17 per cent slide in the price of iron ore cost Australia $8 billion, or half a per cent of GDP. It also looks like BHP and Rio have been trying to ratchet down the price of iron ore. We get to that shortly.

But for now, iron ore is off the parliamentary inquiry table. It has not been deemed to be as urgent a gubernatorial issue as the aforementioned parliamentary inquiries, or for that matter the parliamentary inquiries into stormwater resource in Australia, medical cannabis or drones. Yes, drones.

War of semantics

The guts of the dispute between Andrew Forrest and the majors is this: BHP and Rio accuse him of trying to establish a cartel to artificially elevate the price of iron ore. Acting in concert this way is illegal.

Forrest argues though that Rio and BHP are engaging in predatory market behaviour by forcing the price down in order to blow away smaller operators.

Frankly, he has a point. It is unlikely that an inquiry would unearth emails between BHP and Rio actively colluding to take his market share by sending him broke. In competition law however, market signals are enough.

So it is that a war of semantics is now raging.

BHP’s president of iron ore, Jimmy Wilson, told journalists at a press conference last October: “Demand side in this business still remains good but what we are doing is we’re oversupplying at the moment and we’ll oversupply in the medium term.”

The logical question here is: why would you oversupply, knowing that oversupply means falling prices?

Wilson again: “We’ll oversupply in the medium term, and how that plays out just depends on how quickly the price gets to an inflection point where you drop below inducement price for the majors.”

In mid-March this year, Wilson again: “We’re going to run as much volume through that capacity as we physically can.

“Do we see value in us pulling back our volume with the objective of increasing the price? The answer to that is absolutely no.”

Last June, Rio boss Sam Walsh said: “A lot of my friendly competitors are going to disappear.” Then in December: “I am intrigued that people feel that I have some moral obligation to the juniors.”

In April this year, Rio boss Sam Walsh said: “Rio Tinto remains unapologetic about continued iron ore expansions that are forcing down prices.”

That month, there was a year’s supply of iron ore traded on the Chinese futures market, the DaLian. The DaLian has led the way down; it has reacted savagely to statements from BHP and Rio.

It is pertinent that Fortescue’s own success in pumping out iron ore for the three years until 2013 has had a dramatic impact on oversupply and prices. Further, the spectre of Gina Rinehart’s huge Roy Hill project coming on stream does not help prices. Rinehart has been quiet amid Forrest’s campaign. While Roy Hill is up against it, the Hope Downs project in which she partners with Rio is spitting out cash and it would be in her interests to see Fortescue sent out of business.

For Australia’s national interest, the Chinese would hardly have qualms with running a cartel to force up the price of their exports. Flip-side, a cartel (a group of dominant players) can equally act to force down prices – a la OPEC – and send smaller rivals packing.

Andrew Forrest has a point. It is hardly in the interests of Australia to see lower iron ore prices and there appears to be a concerted campaign by Rio and BHP to send prices lower.

Iron ore is one of the most concentrated of global markets and Australia accounts for 60 per cent of seaborne trade. We are the lowest-cost producer and biggest exporter. The statements emerging from BHP and Rio appear to have damaged the price despite their agreements with the states that require “best endeavours” to sell at the highest price.

All this considered, it is probably not important enough to warrant a parliamentary inquiry when the schedule is so busy with drones, four-bearded rockling, cannabis and the critical parliamentary fence, which may keep the terrorists out but unfortunately will do nothing to keep Canberra safe from lobbyists.

Beyond this, there is perhaps another, more insidious agenda. When the government was at first embracing Fortescue’s idea of an inquiry into iron ore, there were some noises from the likes of independent senator Nick Xenophon that the terms of reference of the inquiry might be broadened to encompass things like the dreaded tax issues.

Even if the majors had nothing to hide on market manipulation, they are loath to see the Singapore hubs issue raise its ugly head. This week BHP admitted it had overstated to the Senate committee on tax avoidance its tax paid for 2014 by $800 million. In recent weeks BHP alone has been hit with a $US25 million ($31.6 million) fine from the SEC over Olympic Games junkets. It is under investigation by the tax office for shenanigans in Singapore.

They just want their reputational damage contained and have found a willing conspirator in the Commonwealth government, which is willing to do this for them.