Shareholders Will Tell Iron Ore Producers to Stop
The battle for iron ore market share is likely to play out in the same way as similar fights in other industries. Squabbles over market share which create excess capacity and depress prices are not unusual. The airlines industry and soft drink and beer markets have had similar experiences. The financial bloodletting can be severe but usually stops when shareholders make it clear that their patience has ended. Once it dawns that large profit gains can be had from relatively modest behavioural changes, the pressure rises quickly. The same is likely to happen in the iron ore market. We are likely to see market testing by the majors to determine how much they have to adjust output to optimise profit outcomes. They must avoid market rigging allegations but they are all confronted by the same circumstances and will eventually react the same way when they are told by angry shareholders tomaximise profits having now done enough to warn off any interlopers wanting to start new mines.
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John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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