BHP, Rio under attack from Barnett

Premier Colin Barnett has strongly criticised Rio Tinto and BHP Billiton, accusing the major iron ore producers of flooding the market and hurting the state.

“This seeming strategy of the two major producers to flood the market and force the price down, I mean, remember who your landlord is, that’s hurting Western Australia,” Mr Barnett told a press conference today.

“You can have your corporate strategy but there is also a sense of corporate and social responsibility, and while you are pursuing your business strategy, which I tend to think is flawed, you are actually hurting your host state.

“It is flawed in trying to manage the world price of a commodity. That usually ends in tears and right now there are tears within the WA government.”

Mr Barnett called the press conference to announce spending cuts, which he said were necessary because of the collapse in government revenue, in large part because of falling iron ore royalties.

The premier said he had no plans to change the iron ore royalty rate.

“I would hate to do that ... but if this continues, that becomes an issue.”

The majors declined to respond to the premier’s comments though BHP Billiton addressed the same issues earlier this week.

The company’s president iron ore, Jimmy Wilson, told a briefing on Monday that the state government actually benefited from higher production volumes.

“I think that one of the benefits of what we're doing is we're actually increasing the volume,” Mr Wilson said.

“There's two components to this, there's the absolute royalty rate, and the other side of it is the volume.

“And we are increasing our volumes, Rio are increasing their volumes, FMG are increasing their volumes; so the government is getting a kicker as a result of those increased volumes.”

Mr Wilson provided details on Monday of the company’s plan to lift annual WA iron ore production by 65 million tonnes to 290mt, despite the weakness in iron ore prices.

“The economics of further increasing our production are compelling,” he said.

However there is concern that other Australian producers will be forced to scrap production if iron ore prices remain low.

BHP’s global president for health, safety and the environment Mike Henry told Radio National this morning that BHP was simply pursuing its competitive advantage.

“It is absolutely in our interest and in the nation’s interest to do exactly what we are doing,” Mr Henry said.

“We see this as just common sense.

“If we adopted an alternative approach ... somebody else will come in and seize the opportunity.”