❓ Mr. McGowan questions Premier Barnett's conflicting statements on iron ore export volumes and their impact on the state budget, accusing BHP Billiton and Rio Tinto of exacerbating budgetary issues through increased production despite falling prices.
AnsweredQoN 773Legislative Assembly
QuestionView source ↗
IRON ORE EXPORT VOLUMES — PREMIER'S
COMMENTS
773. Mr M. McGOWAN to the
Premier:
Before I ask my question, I would like to acknowledge the
member for Victoria Park's father, Cedric, who passed away a few weeks
ago and the great life that Cedric led on behalf of people of this state and
Aboriginal people in particular.
[Applause.]
Mr M. McGOWAN : I
refer to the comments that the Premier made in June regarding iron ore volumes
and the state of government finances. He stated —
It is a fact that while the price
is down, and that is a concern, the volumes are at record levels and that
rising volumes will basically compensate in terms of revenue for Treasury.
How does this compare with the Premier's recent
comments in which he blamed BHP Billiton and Rio Tinto for his budgetary woes
by deliberately increasing volumes?
COMMENTS
773. Mr M. McGOWAN to the
Premier:
Before I ask my question, I would like to acknowledge the
member for Victoria Park's father, Cedric, who passed away a few weeks
ago and the great life that Cedric led on behalf of people of this state and
Aboriginal people in particular.
[Applause.]
Mr M. McGOWAN : I
refer to the comments that the Premier made in June regarding iron ore volumes
and the state of government finances. He stated —
It is a fact that while the price
is down, and that is a concern, the volumes are at record levels and that
rising volumes will basically compensate in terms of revenue for Treasury.
How does this compare with the Premier's recent
comments in which he blamed BHP Billiton and Rio Tinto for his budgetary woes
by deliberately increasing volumes?
AnswerView source ↗
The iron ore industry and iron ore royalties have become
critical to the state's finances. It is true that volumes are
increasing. We expect that iron ore production in Western Australia will double
over the 2010–20 decade. I think normal business logic and economic
logic would suggest that if we are selling a product into a market and the
price is falling at a very fast rate, the normal commercial reaction would be
to cut back on supply into that industry. The quantity supplied would normally
fall.
Mr M. McGowan : If
they had a monopoly, that's right.
Mr C.J. BARNETT :
That is as long as the demand curve has a negative slope. We would normally
expect the quantity supplied into the market to fall in response to a falling
price. When we get a very sharp and large fall in the price of 40 per cent,
which has been accelerated in the past month or so, I find it a strange policy—indeed,
a flawed policy—that the major iron ore producers would be putting more
and more product into a declining soft market. I think that is a flawed policy
and I think it will be a failed policy—no doubt about it.
I find it strange that the companies are seemingly acting in
a concert way; I think that is unusual.
Mr M. McGowan interjected.
The SPEAKER :
Leader of the Opposition!
Mr C.J. BARNETT :
Rising iron ore volumes will compensate to some extent—certainly
nowhere near full extent—for the fall in price of 40 per cent. More
recently over the past couple of weeks or so, the fall in the Australian dollar
will also compensate, but nowhere near the effect of the fall in revenue to the
state.
This is the third iteration of some sort of arrangement
between BHP Billiton and Rio Tinto and maybe other iron ore producers. The
first happened in the late 1990s. I was resources minister when they proposed a
merge. At the time I remember saying very clearly that the government would not
allow that—and we did not; that was the end of that. The second
iteration was, I think, in 2009 when they proposed to merge their iron ore
operations in a physical sense in the Pilbara. That caused great objection from
Chinese steel mills. The European Union ruled against that, and the companies
backed away from the whole deal. Now we have another variation. I do not think
it is healthy for the iron ore industry. I do not think it is a good policy for
shareholders or for those companies, and it certainly damages Western
Australia.
In conclusion, the state government is in a unique position.
We have a broad policy interest and a financial interest in it but we also have
a direct commercial interest as the owner of the iron ore.
Ms R. Saffioti :
Why did you welcome the expansion?
Mr C.J. BARNETT : I
support expansion but I do not support flooding a depressed market.
critical to the state's finances. It is true that volumes are
increasing. We expect that iron ore production in Western Australia will double
over the 2010–20 decade. I think normal business logic and economic
logic would suggest that if we are selling a product into a market and the
price is falling at a very fast rate, the normal commercial reaction would be
to cut back on supply into that industry. The quantity supplied would normally
fall.
Mr M. McGowan : If
they had a monopoly, that's right.
Mr C.J. BARNETT :
That is as long as the demand curve has a negative slope. We would normally
expect the quantity supplied into the market to fall in response to a falling
price. When we get a very sharp and large fall in the price of 40 per cent,
which has been accelerated in the past month or so, I find it a strange policy—indeed,
a flawed policy—that the major iron ore producers would be putting more
and more product into a declining soft market. I think that is a flawed policy
and I think it will be a failed policy—no doubt about it.
I find it strange that the companies are seemingly acting in
a concert way; I think that is unusual.
Mr M. McGowan interjected.
The SPEAKER :
Leader of the Opposition!
Mr C.J. BARNETT :
Rising iron ore volumes will compensate to some extent—certainly
nowhere near full extent—for the fall in price of 40 per cent. More
recently over the past couple of weeks or so, the fall in the Australian dollar
will also compensate, but nowhere near the effect of the fall in revenue to the
state.
This is the third iteration of some sort of arrangement
between BHP Billiton and Rio Tinto and maybe other iron ore producers. The
first happened in the late 1990s. I was resources minister when they proposed a
merge. At the time I remember saying very clearly that the government would not
allow that—and we did not; that was the end of that. The second
iteration was, I think, in 2009 when they proposed to merge their iron ore
operations in a physical sense in the Pilbara. That caused great objection from
Chinese steel mills. The European Union ruled against that, and the companies
backed away from the whole deal. Now we have another variation. I do not think
it is healthy for the iron ore industry. I do not think it is a good policy for
shareholders or for those companies, and it certainly damages Western
Australia.
In conclusion, the state government is in a unique position.
We have a broad policy interest and a financial interest in it but we also have
a direct commercial interest as the owner of the iron ore.
Ms R. Saffioti :
Why did you welcome the expansion?
Mr C.J. BARNETT : I
support expansion but I do not support flooding a depressed market.
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