A push to hold a parliamentary inquiry into the iron ore industry has divided Federal Cabinet, with two ministers fearing Australia’s trading partners will read it as a bid to regulate production.

Fortescue Metals Group chairman Andrew Forrest is leading the charge for an inquiry, claiming the big two miners – BHP Billiton and Rio Tinto – are flooding the market with ore to cut the price and drive smaller miners out of business.

The cause was taken up by Independent Senator Nick Xenophon, who has been negotiating with Treasurer Joe Hockey for a joint House-Senate select committee inquiry, led by a Liberal MP.

• Zombie koalas protest at Brisbane bank
• PM wants energy target passed
• Does iron ore plunge justify a savage budget?

If it went ahead in that form, it could be read as giving government endorsement to the probe.

The ABC understands that possibility deeply worries both Trade Minister Andrew Robb and Industry Minister Ian Macfarlane, who believe it will send a damaging signal to trading partners that the Government is considering regulating the market.

The idea has yet to be debated by Cabinet.

If the inquiry goes ahead, it also threatens to start a damaging fight with two of the most powerful companies in Australia.

Andrew Harding, chief executive of iron ore for Rio Tinto, said Australia should be mindful of the signal an inquiry would send to its major trading partners.

“Australia has been a global champion of free trade and open markets,” he said.

“These have underpinned our economic development. We should be careful not to disturb this hard-earned reputation.

“Our global standing as a supporter of open markets has already been undermined by calls to cap iron ore production and for government intervention in the market.”

Fortescue’s chief financial officer Stephen Pearce said the company had been talking to MPs about an inquiry and believed it was urgent.

He did not think it sent a signal that his company did not support free markets.

“There’s people that are losing their jobs last week, there’s people losing their jobs next week because of the state of the iron ore industry,” Mr Pearce said.

“And all we really want to do is ask the questions. Is iron ore being sold for a fair price? Are royalties being paid on a fair basis?”

The collapse in the iron ore price has punched a huge hole in the both the Australian and West Australian budgets.

Inquiry would provide understanding of price: Hockey

Asked about the inquiry on the ABC’s Insiders program, the Treasurer said it was not aimed at BHP and Rio Tinto.

“They’re huge taxpayers,” Mr Hockey said.

“And they’re enormous contributors to Australia and they’re big employers and we are not anti-Australian.

“This is about providing a better understanding, if it is to proceed … of how iron ore prices are determined in the global marketplace, about the competition from Brazil, about future demand out of China, but not just China, potentially India and a range of other jurisdictions.

“Given we supply around 60 per cent of the sea-borne iron ore in the world and we produce, as I said in my budget speech, enough iron ore to build the Sydney Harbour Bridge from Sydney to Perth and back to Sydney every year, I think we’ve got a lot at stake here and I think we should have absolute transparency.”

Joe Hockey: “This is about providing a better understanding, if it is to proceed … of how iron ore prices are determined in the global marketplace.” Photo: AAP

The Prime Minister backed the Treasurer, saying his government did not interfere in free markets but he believed it was important to get facts on the industry.

“We’re not in the business of holding them back,” Mr Abbott said.

“We’re not in the business of holding their hands. They don’t need to have their hands held. They certainly don’t want to be held back and this Government will certainly never do that.

“The important thing is that we have a dynamic, creative, productive iron ore industry for the future.

“We are by far the world’s largest exporter of iron ore. Iron ore is an incredibly important commodity for this country and for the wider world.

“So we want to ensure that the market is operating as it should. Now I don’t come to this with any preconceptions, I don’t come to this with heroes and villains. I support all of the great Australian companies that are active in this field.”

Shadow Treasurer Chris Bowen said the Prime Minister appeared to be backing an inquiry while the Treasurer was equivocating.

“If there is a Parliamentary inquiry, that’s obviously something Labor would facilitate and participate in,” he said.

“But the Government needs to come to a decision about they support one or not.”

– ABC