Rio Tinto Group Chief Executive Officer Sam Walsh is fast becoming the worst nightmare of rival iron-ore producers starved of cash.
Iron ore prices have slumped by more than half in a year on a deepening global supply glut. That’s pushed some into bankruptcy and left others on life support. News that the lowest-cost producer is mining a ton of ore even more cheaply signals a more protracted price slump.
After achieving an industry-leading $19.50 a ton last year, currency movements and a drop in fuel costs mean Rio Tinto is now producing at $17, Walsh told investors in London on Thursday. The company is still seeking ways to ship it to Asian buyers more cheaply, he said.
“I know there’s a lot of controversy,” Walsh said. “I know that there’s a lot of late entries into the market who have taken advantage of higher prices and they are now feeling the impact of that as prices have come down. ‘‘This is rational, normal economics,’’ he said. ‘‘This is what physically happens across a range of commodities not just iron ore. It’s a process that we and others have got to work through.’’
The strategy, employed by the world’s largest producers, of continuing to expand output in the face of a price rout has earned the ire of some analysts, investors and loss-making rivals. Rio’s main competitor BHP Billiton Ltd. has described the tactic as ‘‘squeezing the lemon.”
Some are furious.
The strategy of BHP and Rio is “ripping the heart out of communities” surrounding iron ore mining towns and the state of the industry is now a “disaster” for everyone involved, the chief executive officer of Australia’s Fortescue Metals Group Ltd., Nev Power, told reporters Thursday.
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