Iron ore: Rio's Walsh rains on everybody's parade

Sam Walsh, head of Rio Tinto's iron ore business, tells The Australian in an interview the current spike in the iron ore prices will likely be short-lived.

Walsh said the iron ore rally – the steelmaking raw material is up 65% to just under $145 a tonne since hitting three-year lows in September – is driven by short term factors.

China's traders are making the most of the volatile situation in the market, while the country's mills are restocking ahead of the upcoming cyclone season off Western Australia's iron mining region, the Pilbara.

"We're seeing an unusual situation at the moment where there's some nervousness from the steel mills in relation to supply. I'm sure it will settle down after the cyclone season," Walsh said.

RELATED: Iron ore: December's breakout sets up strong 2013 >>

Rio Tinto announced last year plans to cut costs by as much as $5 billion over the next two years and Walsh said the iron ore rally – the commodity represents the bulk of the company's profits – won't affect those plans.

Like Rio, fellow Anglo-Australian giant BHP Billiton has also scaled back expansion plans although its iron ore operations remain mostly unaffected.

World number one producer of the commodity, Brazil's Vale announced in December its slashing its capex budget by 24% to $16.3 billion after 2012 also came in under budget.

RELATED: These 2 charts tell you everything about iron ore for the next 20 years >>

Image from Library of Congress circa 1910-1915