Premier Colin Barnett has taken a swipe at mining giants Rio Tinto and BHP Billiton for flooding the world market with iron ore, thereby forcing its price down.
Speaking at a press conference this morning where he announced 1500 public sector redundancies, Mr Barnett warned the Government might have to increase royalty rates for iron ore if the trend of more supply and lower prices continued.
"This seeming strategy of the two major producers to flood the market (with supply) and force the price down, I mean, remember who your landlord is - that's hurting Western Australia," he said.
"I will just make the point, you can have your corporate strategy, but there's also a sense of corporate social responsibility.
"And while you are pursuing your business strategy - which I tend to think is flawed - you are actually hurting the host State, the State that provides the iron ore and generates most of the wealth of Rio Tinto and BHP at a world scale."
This week, BHP announced plans to expand its iron ore exports by 65 million tonnes to 290 million tonnes per annum by the end of 2017.
Rio is in the process of increasing its Pilbara iron ore production capacity to 360 million tonnes a per annum in 2017, 3 3/1/2 times its output 10 years ago.
Both companies have invested heavily in their Pilbara iron ore assets and infrastructure in recent years in a race to expand production and export capacity.
Rio Tinto Iron Ore chief executive Andrew Harding hit back at Mr Barnett, saying if his company had not stepped up production volumes another miner would have.
"Curtailing production would simply create a void that would be filled by other producers and new starters," Mr Harding said today.
"Our analysis indicates there are 32 competitive projects that could be incentivised if we were to withhold volume."
Mr Harding would not be drawn on where the projects were, with analysts expecting Rio's focus to be on Africa in particular.
Mr Harding said Rio was not increasing production volumes out of the Pilbara for volumes-sake, but because it made strong sense for shareholders.
Meanwhile the Barnett Government is battling to deliver a promised Budget surplus as it deals with a plunging iron ore price and its effect on State royalty collections.
The iron ore spot price, for cargoes shipped to China, was today worth about $US80 a tonne, slightly up on fresh five-year lows reached earlier this week. This is nearly $43 below the Government's iron ore price assumptions in the Budget.
Every $US1 below Treasury's forecast costs the Budget about $50 million in revenue over a year.
Based on prices this financial year, iron ore would have to average $135 a tonne for the next nine months to go close to the forecast underpinning the Budget.
Maintaining the current price would blow a near $1.8 billion hole in the Budget's bottom line.