Prime Minister Tony Abbott appears to be distancing himself from a proposed inquiry into the nation’s iron ore industry, as mining giants BHP Billiton and Rio Tinto ramp up the campaign against the idea.

The Federal Government has been considering holding a Parliamentary inquiry to investigate claims by Fortescue Metals Group Chairman Andrew Forrest that big miners are flooding the market to deliberately drive down iron ore prices.

Last Friday, Mr Abbott indicated he was in favour of the move, telling Macquarie Radio: “I think we do need an inquiry.”

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But on Tuesday, he stressed no decision had been made.

“Obviously, we believe in the free market and we certainly haven’t made any decision to have an inquiry,” Mr Abbott said.

“This is something that (independent senator) Nick Xenophon was talking about last week.

“The last thing we would want is a one-sided inquiry which degenerates into a witch hunt against some of our best companies.”

Mr Abbott said while it was important to get the facts, the Government did not want to interfere in the iron ore market.

Meanwhile, earlier on Tuesday, Mr Xenophon remained hopeful the Abbott government would fulfil its promise of an inquiry.

But if it heeds what he describes as the “hysterical” response from mining bosses he will not only seek a Senate inquiry in June but bring forward his own legislation to change competition rules in the mining sector.

“When you consider the fall in the iron ore price has punched an $18 billion hole in our deficit, I would have thought it’s in the national interest to look at these issues carefully and methodically,” Mr Xenophon told reporters in Canberra on Tuesday.

Andrew Forrest shovelling ore at a time when everything was golden for the miner. Photo: ABC

The comments came after BHP CEO Andrew Mackenzie CEO mounted a strong argument against the need for a probe on national radio.

In a testy interview on ABC radio, Mr Mackenzie stridently defended the iron ore operations of his business and outlined the damage that could be done to Australia’s reputation as a trading nation if the government launches an inquiry.

Mr Forrest is “wrong”, said Mr Mckenzie, before listing the investments in the iron ore market which BHP has deferred or cancelled since the price of iron ore fell from $180 a tonne to below $50, making smaller operators unprofitable.

In the face of Mr Forrest’s allegations that BHP was oversupplying the market to force out smaller operators, Mr McKenzie said that in 2012 the company “saw the market turning” and cancelled investments in 180 million tonnes of iron ore and other projects which would have increased its output.

“That’s more, by the way, than Fortescue produces today,” he said.

But he said his company was producing two-and-a-half times more than it was producing in 2006.

Mr McKenzie slammed the idea of an inquiry, saying it would send a bad signal to its customers at a time when international competition was building.

“This is a ridiculous waste of taxpayers’ money to provide a basic economics course on supply and demand,” Mr McKenzie said.

On Friday, Mr Forrest took aim at BHP executives who “talk the market down” and seek to oversupply it, which can force prices down.

“We no longer have a free market, Fran. We have a distorted market,” said Mr Forrest.

But Mr McKenzie, admitting he was “perplexed” by the claim, said that was not the case.

“It’s a normal, free market. If you allow it to remain free, we’ll allow the customer to enjoy the lowest cost of supply and therefore the most sustainable price, and that stimulates demand and it’s good for the world economy and it’s good for geopolitical harmony when people feel that they can turn to Australia for the supply they need to grow.”

He said the iron ore price, which reached $180-a-tonne in 2011, was a “once in a generation spike” driven by the “massive urbanisation” of China.

“What you’re asking us to do is effectively run our plants at half capacity. That would cripple us in terms of costs, and you would never expect that to happen.”

– with ABC