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Also from today's Fin. Review: Iron ore probe dumped after...

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    Also from today's Fin. Review:


    Iron ore probe dumped after China's Brazil deal; bad news for FMG

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    Andrew Forrest argues Rio Tinto and BHP Billiton are signalling production increases to push down the price and and drive Fortescue Metals Group out of business. Bloomberg

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    by Phillip Coorey

    Analysts are tipping the iron ore price will return to historic lows following a supply agreement between China and Brazil that could put more pressure on Andrew Forrest's Fortescue Metals Group .

    The predictions came as Mr Forrest's attempt to embarrass his biggest competitors, BHP Billiton and Rio Tinto, failed when the Abbott government dumped plans for an inquiry into iron ore, less than a week after publicly advocating such a probe.

    As forecast by The Australian Financial Review, Treasurer Joe Hockey released a short statement late Thursday killing off the probe.

    "After discussing the issue with regulatory bodies and stakeholders across the resources sector, the Government will not be initiating an inquiry at this time."

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    Iron ore at the Port of Qingdao edged edged higher US79c on Thursday after several days of falls. Bloomberg

    Mr Forrest argues Rio Tinto and BHP Billiton are signalling production increases to push down the price and and drive his company out of business, a claim they deny.

    The big miners welcomed the decision with Rio Tinto iron ore chief executive Andrew Harding saying once Australia conceded market share, it would be very difficult to recover.

    A furious Mr Forrest accused the government of "bowing to the intense lobbying and wishes of the multinational mining giants".

    "This denies the Australian people the opportunity to shine a light on the activities of these companies and ask whether the iron ore market have been operating as a truly free market, or whether they have been distorted by the actions of certain industry members and to whose benefit and why," he said.

    He vowed to keep pursuing the issue, saying "the people need to know the circumstances that led to the collapse in the price of iron ore, the loss of  thousands of jobs, the shutdown of companies and the loss of billions of dollars from State and Federal budgets".

    Head of investment strategy at investment bank UBS, David Sokulsky, said that this week's deal between the Chinese government and Brazilian giant Vale do Rio Doce reflected both the determination of Beijing to diversify supply sources and of large producers to step up output to shake out smaller and less efficient mine operators.

    Vale, the world's largest iron ore producer, last year accounted for 18 per cent of the supply to the Chinese market, compared with nearly 60 per cent by Australian producers, dominated by Rio Tinto and BHP Billiton.

    China's investment in Vale was part of a broader state strategy to invest directly in emerging markets to shore up supply of commodities, Mr Sokulsky said.

    "Now they can say 'we support our domestic market, we're making sure Brazil is a viable alternative and we can still get our iron ore from Australia'," he said.

    Chinese officials this week agreed to invest in Vale's fleet of huge ore carriers and extend loans to the company to help fund a $US16.5 billion ($20.8 billion) mine expansion.

    While the deal was not linked directly to the uncertainty caused by the government considering an iron ore inquiry, the critics argued it was an example of why such an inquiry would destabilise confidence in Australian markets and give competitors such as Brazil an edge.

    The Chamber of Minerals and Energy of Western Australia said the inquiry would have damaged Australia's free-market reputation and benefited competitors.

    "The resources sector operates in a global market place and our trading partners would've been anxiously watching any parliamentary inquiry," said chief executive Reg Howard-Smith.

    BHP chief executive Andrew Mackenzie said "we thank the government for its consultation across the industry and we welcome the decision."

    Opposition leader Bill Shorten was similarly pleased but said the inquiry should never have been contemplated.

    "There is no doubt the Prime Minister's actions and those of his Ministers have damaged the industry.

    "This has been a debacle entirely of the Government's own making," he said.

    "It has taken too long for the Prime Minister to admit he got this wrong.

    "This speculation has given our international competitors an advantage, they will make the most of this."

    Last Friday, after being lobbied by Mr Forrest, Prime Minister Tony Abbott gave him an assurance and then said publicly there would be an inquiry.

    "I think we do need to know the facts of what's going on here, because I am conscious of the claims that are being made by Andrew Forrest and others," he said. Mr Hockey was also publicly supportive of an inquiry.

    The issue split the cabinet, divided the back bench, angered the minerals giants and overshadowed the government's efforts to sell its budget.

    The government now claims that it only considered the inquiry to protect the industry from a Senate inquiry, which would have turned into a circus.

    Independent Senator Nick Xenophon had proposed establishing a Senate inquiry and the government argues this would have been led by Labor Senator Sam Dastyari whose committee most recently took to task multi-national tax minimisers.

    So the government took control by planning a less spectacular inquiry with a committee led by respected lower house Liberal MP, Angus Taylor.

    Senator Nick Xenophon said his proposal was killed off by a "shock and ore" campaign by the big miners.


    Cheers,

    Samson
 
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