Yesterday, the mining giant and world’s third-biggest iron ore producer announced it would defer the Inner Harbour Debottlenecking project at Port Hedland, which would have taken capacity to 290 million tonnes per annum by the end of FY17.
 
It was followed by a near-6% jump in the iron ore price overnight to $US54.04 per tonne.
 
Speaking to journalists in Sydney today, Hockey said the government was carefully monitoring the iron ore price given the impact the halving of the price over the past year would have on the budget.
 
“Common sense must prevail,” he said.
 
“I'm glad that the producers in Australia are taking a more reasonable approach to production levels.
 
“Obviously, the price of iron ore is going to have an impact on our budget and we expect our producers to behave collectively in a mature fashion.”
 
It comes after Fortescue Metals Group boss Nev Power said last week that the current state of the iron ore market had “ripped the heart out of the industry” and noted the weak price was the single biggest issue impacting state and federal budgets next month.
 
“The governments need to take a really hard look at the industry and they assess how they’re going to handle it going forward,” Power said.
 
BHP and Rio Tinto have also been heavily criticised over the past six months by Western Australian Premier Colin Barnett for “flooding the market” to depress the price and force its competitors out of business.
 
But Rio boss Sam Walsh remained unapologetic last week, vowing to remain one step ahead of its rivals.
 
“I know there’s a lot of controversy in the iron ore market, but a lot of the late entries into the market that have taken advantage of higher prices, they’re now feeling the impact of that as prices have come down,” he said in London a week ago.
 
Morgans analyst Adrian Prendergast today echoed BHP and Rio’s views that propping up the market was not their responsibility.
 
“While it is popular to blame the ‘Big 3’ (BHP, Rio, and Vale) for the current supply surplus in iron ore, it remains our view that the supply wave they (and FMG) developed did not appear overnight,” he said.
 
“In fact it was years in the making with the industry well aware it was coming.
 
“Despite this, smaller players rushed to develop high-cost production in an attempt to capitalise on peak-cycle pricing.
 
“We therefore do not blame the majors for now completing their planned expansions at the expense of their less-competitive peers (who appear to have failed to plan accordingly for the eventuality of lower iron ore prices).”
 
Despite slowing its expansion, BHP still plans to lift production from 250Mtpa to 270Mtpa, while Rio is completing its expansion to 360Mtpa.