Max O.
The current capitalist crisis of over
production in the iron ore mining industry has seen antagonistic rivalry take
place between mining companies in Australia. The fall in demand for iron ore,
particularly from China has seen its price drop from an all time high of US$185
a tonne to lows of US$40 a tonne.
This slump in price has in particular caused Andrew
'Twiggy' Forrest's Fortescue Metals Group (FMG) consternation. However, much to
the chagrin of Forrest, the two big mining giants Rio Tinto and BHP Billiton
have increased their output of iron ore, even though prices are low.
Due to the fact that FMG has higher operating
costs than its bigger competitors, BHP Billiton and Rio Tinto, and massive
debts of $7.4bn Forrest initially called for a cap on iron ore production in
Australia, to avert the fall in its price. Unfortunately for him BHP Billiton and
Rio Tinto would not oblige and continued to increase their own iron ore
production.
Whilst FMG has a break-even operating price
of US$39 a tonne its competitors BHP Billiton and Rio Tinto have a break-even
price of US$30 a tonne, with BHP Billiton planning to reduce costs further to
US$16 a tonne at its WA iron ore mines. The chief method for mining
corporations to reduce their costs is to cut their workforce.
Over 3000 jobs have been eliminated from the
mining sector in Western Australia so far in 2015. FMG has sacked around 1000
employees and contractors.
Well, what else could Forrest do to protect
FMG? He called for a Federal Government inquiry into iron ore pricing in
Australia, accusing the mining giants of rigging prices and not acting in the
national interest.
Who's running the country?
For a while his lobbying prowess had the
'supportive ear' of Prime Minister Abbott and Treasurer Hockey, however it was
quickly slapped down by the formidable BHP Billiton and Rio Tinto colossus.
This was a sure-fire demonstration of who runs the country, and its definitely
not Forrest and FMG - even though FMG is touted as being the third biggest
player in iron ore mining.
Forrest and FMG, indeed Gina Rinehart, are
small players in the mining game, around 5%.
Until recently FMG was one of the biggest
contributors to escalating the global supply of iron ore. Forrest's company had
enlarged its delivery of iron ore to China far more rapidly than either BHP
Billiton and Rio Tinto.
Now with Chinese demand for iron ore waning Rio
Tinto and BHP Billiton, are now forced to mine as much ore as possible to
operate at their maximum efficiency, as large capitalist corporations must to
maintain and increase their profitability. It just happens to be at FMG's and
other small mining companies' expense!
In all this rivalry between the giant “Goliaths”
and the little “Davids” in the mining industry it is intriguing to see that the
large nominee companies JP Morgan Chase, Citibank, HSBC, BNP Paribas and
National Nominees are some of the largest shareholders of both Rio Tinto, BHP Billiton
and FMG. These same large nominee companies also pop up as the largest
shareholders of the "Big Four" 'Australian' banks. Nominee companies
are established for the sole purpose of holding shares on behalf of other
entities who want to hide their identity. They are apt to be both foreign
investors and fund managers.
FMG ownership profile as of June this year is
the following:
- Minderoo Group Pty Ltd 30.3% (Forrest family company)
- J P Morgan Nominees Australia Limited 10.7%
- HSBC Custody Nominees (Australia) Limited 9.6%
- Valin Investments (Singapore) Pte Ltd 7.3%
- National Nominees Limited 5.9%
- Other 36.2%
This ownership information was found at the
following website:
http://markets.theaustralian.com.au/shares/FMG/fortescue-metals-group-ltd
In the table below we see the familiar names
of the nominee companies JP Morgan, HSBC, Citicorp who have their tentacles attached
to Australia's largest public companies. BHP Billiton and Rio Tinto have
significant cross ownership by these nominee companies.
Major shareholder of Australia's
largest public companies:
The next table shows these same nominee
companies have significant cross ownership of the "Big Four"
'Australian' banks.
Major Shareholders in Australia's
"Big Four" banks:
The ownership information from the above two
tables was found at the following website:
https://independentaustralia.net/business/business-display/who-owns-corporate-australia,5033
A power shift from Western capital and nominee companies
to Chinese capital?
With iron ore prices crashing it has forced
FMG to slash jobs, cut costs and restructure it debt. The company in March this
year failed to refinance $2.5bn worth of loans at the interest rate it wanted
to secure its debt. Consequently investors exited Fortescue pushing its share
value down by more than 7% to $1.83 a share, a six year low. At the time
investors were definitely worried that FMG's unsuccessful efforts to refinance
its debt on favourable terms meant that Fortescue might be a risky option or
that the US credit markets were shutting the door to its troubles ahead.
As the stormy financial seas were about to
flood FMG's deck and hold it seems the Chinese sampans might come to the
rescue. The Chinese companies Baosteel and the conglomerate CITIC were reported
to have held talks with Fortescue and applied to Australia's Foreign Investment
Review Board (FIRB) about investing in the extremely indebted miner.
Once the speculation of Chinese investors interested
in buying a stake in FMG became common knowledge its shares soared by 13.36% to
$2.46 a share in late May. However, the media reported that Treasurer Hockey
would "take close interest" in any investing by Chinese businesses
into FMG.
Whilst Industry Minister Macfarlane
recognises that “Australia is built on foreign investment and that foreign
investment comes from all parts of the globe. It’s what’s built this country;
it’s what’s built our resource industry,” there are definite strategic reasons
for concern or to use their words "potentially any conflicts".
Hard-headed and aligned business media
outlets such as Macrobusiness are quite unambiguous in their hostility to the
Chinese move of securing a stake in Fortescue. Macrobusiness argues: "As
the customer for 70% of global seaborne iron ore production, China has
clear priorities and incentives to privilege a low iron ore price over profit
generation. To allow that customer to take a big enough stake in the
emerging marginal cost producer to be influential in strategy is to risk,
and let’s face it deliver, a much lower long term iron ore price.
"The maths is simple. If commodity markets are left alone over the long term, the lowest marginal cost of production sets the price. However, if marginal producers are kept alive by state-sponsored life support then the oversupply can never clear and the price sinks below the lowest marginal cost.
"It is quite conceivable that a Chinese controlled FMG could force RIO and BHP to cut much cheaper and more profitable tonnages in the future, even as it runs loss after loss.
"This is a market structure issue of the highest national interest priority. At one third of exports and three quarters (with coking coal) of export income growth since 2003, iron ore is the key to the Australian economy. If the Pilbara cartel of BHP and RIO is structurally undermined so is Australia’s sovereignty, economic prospects and strategic outlook."
Straight away you can see their alignment with BHP Billiton and Rio Tinto and that what they call sovereignty is code for Australia's US/Western alliance. The outcome of FMG's debt difficulties is a possible tussle for its fortunes between China and the West.
A Chinese dragon or US eagle empire?
Back in
2009 Chinese steel maker Hunan Valin Iron and Steel Group bought a stake into
Fortescue for A$636m. At the time of purchasing equity into FMG, Valin had the
following portfolio: Valin Investments
(Singapore) Pte Ltd, 228,007,497shares, 7.34%; Valin Resources Investments
(Singapore) Pte Ltd, 154,267,590 shares, 4.97%; Valin Mining Investments
(Singapore) Pte Ltd, 152,724,913 shares, 4.92%.
So even before
its recent financial upheaval, FMG has had Chinese equity to the tune of
17.23%. Now if FIRB
allows further Chinese interest into Fortescue to grow, and there is a pretty good
chance it will be blocked, this would a have dramatic effect on the iron ore
mining in Australia.
Like
all imperialists the Chinese don't like to be obligated to markets for their
mineral resources. Rather they want to control the process from mining through
to production.
China
wants secure long-term mineral supplies and is prepared to pay to make it
happen. It is making sure it has equity in all global suppliers; recently it
was reported that China will bankroll an enormous expansion of the Brazilian
miner, Vale with its mining of low cost iron ore.
This supply
of new ore would definitely compete with Australian production on cost and
quality. The Chinese are playing the market and prying into the possibilities of
capturing mining projects around the globe.
Currently
they have enormous interest in West African iron ore projects, and they've teamed-up
with Rio Tinto in Guinea. China does not want the iron ore market concentrated
in the hands of the mining giants like Rio Tinto, BHP Billiton and Vale.
Fortescue
exports large quantities of sub-premium ore that is important as a blending
material for both China's 66% concentrates it produces locally and the
Brazilian 65% concentrates that the Chinese plan to acquire from there. Therefore
it has good reason to pursue a deeper involvement with FMG, irrespective of its
highly leveraged financial position.
It has
been noted that Fortescue is tightly welded to the Chinese steel production market
system. Therefore FMG and Forrest are not only caught up in a game of markets
and financial advantage but also in the deadly art of geo-politics.
The Chinese will use its developing relationship with Brazil to draw Australia out of its dependent relationship with the US and the West. Wu Xinbo, Dean of the Institute of International Studies at Fudan University has stated that “If Australia gets closer to the United States we will see China increase its purchases from Brazil, while reducing its trade with Australia… The alliance between Australia and the US is a major constraint on the relationship between China and Australia.”
Put all these latest developments of Fortescue alongside Australia's involvement and participation with the Trans Pacific Partnership and the US 'Asia Pivot' military strategy to isolate and overpower China, one can see there is a larger imperialist struggle for hegemony going on.
The rise and fall of Forrest and FMG is just one act in this highly dangerous end game.
No comments:
Post a Comment