The falling Iron ore price and Australia’s number 3 firm Fortescue’s struggle to survive

Iron ore has reached its lowest price ever. Australia or rather the success and expansion of Australian mining operations are one of the prime reasons for this low price as Australia’s mining giants have ramped up production in recent years. A slowdown in demand in China combined with the increased supply and availability has led to this decline in prices.

Now, in what could be seen as a sign of desperation, mining magnate Andrew Forrest of Fortescue made a plea for the other big two Australian mining companies Rio Tinto and BHP to join Fortescue  and limit production. The idea was quickly slammed however by Rio Tinto’s Chief Executive Officer Sam Walsh as ‘hairbrained’.

In further backfire from Mr. Forrest’s comments, The Australian Competition and Consumer Commission is investigating his comments as being in breach of competition laws. However, Mr. Forrest points out that the comments were firstly made at a private function, and he wasn’t speaking officially and in addition that they were actually valid as they were in the Australian national interest. Sam Walsh, on the other hand, claims that such an agreement would not be in the national interest. Mr. Walsh stated that the margins on Iron were still high, it was better to have the competition and that if a ‘cartel’ of Australian firms was formed, the drop in production could be filled by other sources.

The upshot of all this is it seems clear there is going to be no capping of production of Iron ore in the near future, so the low price of Iron is set to continue.

It’s not all bad news for Fortescue however, one might think this latest furore might have had negative consequences for its share value. After a devastating year where it dropped from a high of 5.59 to below 2 dollars per share, the share price has actually seen a rise of over 10 Australian cents in the last day. The rise is due to speculation that  Anglo-Swiss mining behemoth Glencore is considering buying a stake in the ailing company as well as the purchase of over $250,000 worth of shares by Fortescue non-executive director Dr Jean Baderschneider. While both are positive indicators, it’s the interest from Glencore which is paramount and any more concrete indicators that this speculation has substance to it should see further rises in Fortescue share price.

Two things are clear from this week however. Firstly, whether the Fortescue share price rises or falls, its rise won’t come with any help from its two bigger local rivals. Secondly, low iron-ore prices are here to stay, for now at least.