LONDON — Rio Tinto, one of the world’s largest mining companies, has big plans for pulling even more iron ore from the earth.
It is spending billions of dollars to expand its existing operations in the Pilbara region of Western Australia, where driverless trucks the size of three-story buildings haul iron ore out of 15 mines. The trouble is, the buildup comes just as Rio Tinto’s single biggest customer, China, is losing economic steam and global demand for raw materials like iron ore and copper has been cooling.
On a single day in early March, the spot market price of iron ore — the main ingredient in steel — fell by more than 8 percent, and it is down 12 percent for the year. The price of copper, another essential raw material for industry, has recently hovered near four-year lows.
Though mining executives tend to take the long view of their markets, where price cycles are part of the game, some analysts say that this time the industry may be staring at a deeper set of problems from which miners like Rio Tinto could have trouble extracting themselves. Even as China’s decades-old appetite for steel may be abating, there is a potential iron-ore glut coming because so many mining companies increased production to chase prices that for years were alluringly high.
The stock fell by 13 percent from mid-February to mid-March and since then has regained only about half that ground, even as broader indexes have been on the rise.
Rio Tinto is “definitely the most exposed major mining company” to iron ore, said Richard Knights, an analyst at Liberum, a London-based investment bank. Iron ore accounted for about 85 percent of the company’s $3.7 billion in net earnings last year.
Rio Tinto’s’s chief executive, Sam Walsh, admits to no worries. He says costs at the Australian iron ore operation are so low that prices can fall much further before there will be cause to panic. And he insists that a slowdown in China is not the end of global growth.
“As long as the world is continuing to develop, it is going to need us,” Mr. Walsh said in a recent interview at the company’s headquarters just across from Paddington Station in London, where a painting of a Pilbara landscape is on prominent display.
Mr. Walsh, an Australian, said the company, whose origins date to riverside copper mines on the Rio Tinto in Spain in the 1870s, would thrive because of the extent and diversity of its operations. Besides iron, the company is a leading producer of copper, aluminum and diamonds — whose ebbs and flows of demand and prices can often offset one another.
But he acknowledges that it is becoming increasingly difficult to open new mines, in large part because of environmental and political hurdles. “It used to be that you could bring on a large project — whether it be copper or iron ore or whatever — in five years,” he said. “Now it is 10.”
Rio Tinto’s path has had its potholes.
In 2007, the company paid more than $38 billion for the Canadian aluminum maker Alcan. Rio Tinto bought near the top of the market, calculating that a boom in China would fuel demand for the metal. Instead, Chinese aluminum producers flooded the market and prices crashed.
“To an extent we lost our way,” said Mr. Walsh, who was appointed chief executive in January 2013 to put Rio Tinto on a sounder footing. “We invested in things we shouldn’t have. Costs had gotten away from us.”
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