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Fortescue calls for iron ore output cap, angers competition body

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Fortescue founder and chairman Andrew Forrest told a gathering in Shanghai late Tuesday he was happy to challenge rivals to "cap our production right here and start acting like grown-ups", the Australian Financial Review reported.

[SYDNEY] Australia's Fortescue Metals Group called on rivals to cap iron ore production in the hope of triggering a price recovery, drawing an immediate rebuke from competition authorities.

Fortescue founder and chairman Andrew Forrest told a gathering in Shanghai late Tuesday he was happy to challenge rivals to "cap our production right here and start acting like grown-ups", the Australian Financial Review reported.

The comments come as a glut of ore, along with slower Chinese demand growth, has slashed prices, hampering efforts by the world's fourth-largest iron ore miner to refinance US$2.5 billion in debt and sending its shares to six-year lows.

Australian competitors BHP Billiton and Rio Tinto declined immediate comment, but have consistently outlined a strategy of ramping up production in a bid to win market share from higher-cost rivals.

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The Australian Competition and Consumer Commission (ACCC) issued a statement on Wednesday calling on Mr Forrest to explain his remarks. "The ACCC will be looking closely at Mr Forrest's comments and the context in which they were made. In general terms, any attempt by Australian businesses to encourage competitors to restrict outputs is a matter of grave concern to the ACCC,"commission chairman Rod Sims said in a statement.

Australian law provides for penalties of up to 10 years in jail for individuals involved in cartel behaviour and heavy financial penalities for corporations.

Mr Forrest said at the business gathering that he was"absolutely happy to cap my production right now" at 180 million tonnes. This is 20 million to 25 million tonnes above the miner's forecast output this year.

Other major miners Rio Tinto, BHP Billiton and Brazil's Vale should also cap their production "and we'll find the iron ore price will go straight back up to US$70, US$80, US$90 (a tonne)." Iron ore prices have halved over the past year to stand at US$55.60 .IO62-CNI=SI .

Major producers have repeatedly resisted calls to slow down expansion work.

Fortescue, Vale, Rio Tinto and BHP added 234 million tonnes of iron ore in the past two years - five times yearly US consumption - and intend to inject another 196 million tonnes by 2020.

Rio Tinto Chief Executive Sam Walsh has said iron ore mining has become a "survival of the fittest" business, where only the largest producers were likely to prosper.

BHP chief Executive Andrew Mackenzie wrote in The Australian newspaper in February that he saw no benefit in curtailing output. "The only certain effect of stalling production will be to reduce Australian exports, and Australia's share of the iron ore market," he said.

A spokesman for Rio Tinto had no immediate comment, while BHP referred Reuters to Mackenzie's published comments.

Fortescue was producing at a rate of 164 million tonnes a year in the first half of fiscal 2015, slightly ahead of its own guidance of 155-160 million tonnes, a company spokesman said.

Morgan Stanley on Tuesday cut its rating on Fortescue to underweight from equal weight, citing reductions in the bank's iron ore price forecasts for 2015 and 2016. It has a A$1.65 a share price target on the stock. Fortescue was trading 2 per cent higher at A$2.05 at 0224 GMT.

REUTERS

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