Chris Ellison speaks out as iron ore threatens to head back under $US100/t and Fortescue shares hammered

Mining billionaire Chris Ellison has lamented Australia’s deteriorating relationship with its biggest trading partner as a new price collapse threatened to send iron ore back under $US100 a tonne, smashing Fortescue Metals Group shares and undermining government Budgets. With futures plunging to $US102/t yesterday, iron ore had given up nearly 20 per cent over the week and more than halved since hitting record highs above $US233/t in May. The collapse has been driven by tightening curbs on steel production in China, with financial problems at one of the country’s biggest property players also playing a part in recent days. Mr Ellison, the chief executive of mining and services group Mineral Resources, told a function in Perth today that the fractious political relationship with China threatened to exacerbate the economic fallout for Australia, claiming Beijing was trying to deter lenders from issuing letters of credit for Pilbara ore. “I don’t think we’re doing ourselves any favours with some of the messaging coming out of Australia … to the Chinese government it’s consistently negative,” Mr Ellison said. China was “trying to deter the financial institutions from issuing LCs to us” and sidelining Australian ore by stockpiling it, he said. The mining boss said further price falls were inevitable. “We’ll see it go below $US100, there’s no doubt about that.” FMG was the biggest casualty of the day, its shares crashing 11.5 per cent after UBS slapped a sell on the stock and cut its price target to $15 from $18. Having traded at record levels above $26 just two months ago, FMG shed $1.98 to a closing year-low of $15.27, wiping $6 billion from the miner’s worth. The horror fall also comes less than 24 hours after The West Australian revealed the miner was scrambling to fill a raft of key management positions after an exodus of senior staff that has been linked to anger over FMG’s capping of executive share bonuses. Shares in rival iron ore miners BHP and Rio Tinto were also lower, giving up 3.7 per cent and 4.7 per cent respectively. But FMG’s fall was sharpened by the sell recommendation by UBS, which has cut its profit and dividend forecasts for the miner to reflect lower prices for iron ore in the next few months. While a retreat back to $US100/t by the end of 2021 was not unexpected by most analysts, the sharpness of the fall has rattled investors and commodity markets around the globe, UBS said the decline “has played out faster than expected”. It now expects prices to fall below $US100/t in the next few months before settling at $US70/t to $US80/t and averaging $US89/t next year. The quicker-than-expected retreat will also reduce budgeted royalty income over the next year. WA, for example, will lose billions of dollars in revenue earlier than it had forecast, as the State Government had not expected a rundown to iron ore’s long-term average of $US66/t until mid-2022. Likewise, the Federal Budget in May assumed a fall to $US55t by late next year. AMP Capital chief economist Shane Oliver said that when combined with lockdown support payments on the east coast, the financial hit could push the Budget deficit out to near $150 billion from a forecast $107b. The price collapse has already claimed a first victim, with Venture Minerals suspending production at its Riley mine in Tasmania after just one shipment because of “declining market conditions”. The move highlights the risks for small, high-cost swing players who had entered the market opportunistically in recent months on the back of the strong iron ore price. Venture will retain its 100-strong team.