Twiggy is a larger than life figure in Australian business and has done much that should be admired. But his latest call for governments – any government will do – to ‘do something’ sits right there alongside his call for the Australia’s iron ore majors to form a cartel. It’s not exactly clear what he’d like the government to do: set production quotas for the individual iron ore companies?
It reminds me of a story told to me by Bob Bunning more than a decade ago when his family owned the Bunnings business. At the time there was a lot of public discussion around wood chip licenses which had to be renewed annually. I asked Bob: how does a Board make major capital investment decisions when you have to go cap in hand to the Government every year for export licenses?
Ironically, it turns out the industry asked for export licenses to be introduced. Back in about the 60’s the Japanese woodchip buyers used to come to Australia to negotiate pricing. They invariably picked on the small players who had little negotiating power and settled prices which were ‘too low’ but then set a benchmark for the negotiations with the majors. The major players at the time thought it would be a good idea for the government to impose annual export licenses, so that they could block the smaller guys from selling ‘too low’ through denying export licenses.
The government did just as the industry asked. And as the years went by, what seemed like a good idea at the time became a nightmare for modern investment decisions in the industry.
Not just Twiggy, but many in the iron ore industry seem to think we are ‘giving it away’ at $50/t. In reality, if pricing since 2003 had followed the trends of the previous 30 plus years, the price today would be less than $30/t … if you want to read more about that, have a look at one of my recent blogs: Take a deep breath: iron ore markets are doing what you would expect them to do.
I understand Twiggy’s campaign … he’s doing everything he can for his shareholders, and there are few as persuasive as Twiggy. I wonder what advice Bob Bunning might offer Twiggy?
