BHP Billiton and Rio Tinto have been subject to criticism from a number of fronts for continuing to increase production of iron ore in the face of falling prices (the price of iron ore has fallen this year from near US$120 to about US$80 a tonne):
- The Premier of Western Australia Colin Barnett has suggested that the miners have acted “in concert” to flood the “depressed” market for iron ore. Mr Barnett later clarified that he did not intend to allege that there was “collusion” or a “cartel” arrangement between BHP and Rio Tinto.
- The CEO of Fortescue Metals, Mr Nev Power has also suggested that BHP Billiton and Rio Tinto are engaging in a “scorched earth” strategy with regard to the expansion of iron ore production.
- There has also been media commentary which has stated that a rationale for this strategy is to push higher cost suppliers of iron ore out of the market.
This type of comment could be interpreted to reflect a concern that BHP Billiton and/or Rio Tinto may be engaging in conduct which is a misuse of any market power (e.g. engaging in predatory pricing practices in the supply of iron ore).
However, Mr Sims recently dismissed this type of speculation with comments that the ACCC does not have “any indication” of any misuse of market power by BHP Billiton or Rio Tinto. He acknowledged that in years past both BHP and Rio Tinto had increased their infrastructure investment and the “increase in production would be a direct result of that”.
Mr Sims pointed out that it is not a breach of the law for a company, in the pursuit or profits and market share, to engage in conduct that has the effect of damaging or pushing out smaller competitors.
As we have previously reported, the Draft Report of the Competition Policy Review Panel has recommended a number of amendments to the misuse of market power prohibition, some of which are consistent with the ACCC’s submissions.
The Draft Report released by the Panel includes a draft recommendation that a “substantial lessening of competition” test be included in the misuse of market power prohibition, focussed on whether conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition. In making this recommendation, the Panel emphasised that its intention proposing these changes is to ensure consistency between provisions of the Competition and Consumer Act, with the focus in the current provision on a “purpose” of “damaging a competitor” is inconsistent with the overriding policy objective of the Act, being protecting the competitive process rather than individual competitors.