Rio Tinto claims it will ‘thrive’ on lower iron ore prices
Rio Tinto (ASX:RIO), the world's second-largest iron ore miner, defended its strategy to keep ramping up output against calls for production caps, saying the decision will actually help the company thrive.
At the company’s annual general meeting in London, chairman Jan Du Plessis acknowledged slumping commodity prices were placing rival producers under “significant distress,” but argued Rio’s decision to lift production was “rational, normal economics”.
“In times of increased market volatility, investors seek strength, reliability and consistency and, in such times, Rio Tinto thrives,” Du Plessis said according to AAP.
Bumps along the road
Chief executive Sam Walsh told shareholders in London he expected “continued bumps before the market settles” but added Rio was well placed to deal with the volatility given it had a robust balance sheet.
“I know there’s a lot of controversy, I know that there’s a lot of late entries into the market who have taken advantage of higher prices and they’re now feeling the impact of that as prices have come down,” Walsh was quoted by Bloomberg as saying.
He noted that after achieving an industry-leading $19.50 a ton last year, currency movements and a drop in fuel costs mean Rio’s iron ore costs are now running closer to $17.
Ratings agency Standard and Poor’s has put eight of the world’s largest iron ore producers — including Rio and BHP Billiton — on negative watch following the steady plunge in prices.
Even Australia’s treasurer Joe Hockey has warned that the federal budget could suffer a $30bn revenue write-down over the next four years because of the iron ore price drop.
But none of these factors seem to bother Rio Tinto.
Meanwhile, higher cost rivals struggle. Atlas Iron was forced to mothball its mines and BC Iron has warned that it might have to do the same.
Nev Power, the CEO of Australian Fortescue Metals (ASX:FMG)—the world’s fourth-largest iron ore exporter by volume— summarized the situation best: “The current state of the iron-ore industry has been a disaster for everyone,” he told the WSJ on Thursday. “It has ripped the heart out of the industry. There are no winners in any of this.”