Iron Ore: Rio Tinto Has No Plans to Slow Down

Mining behemoth Rio Tinto is determined to push the boundaries of iron ore. According to CEO Sam Walsh, the company will continue to push on with it iron ore expansion in the Pilbara region despite declining prices for the steel making ingredient.

• Iron Ore Prices Expected to Drop Below $40 Per Ton in 2015

“Our Pilbara expansion represents a clear and consistent strategic response to the unprecedented long-term growth in China. The world remains on a path towards greater urbanization. It should be remembered that growth of just 1% a year is required for China to reach one-billion tons of crude steel production by 2030,” Walsh told Shareholders last week in London.

Rio Tinto is anticipating production of 330 million tons of iron ore during the full year of 2015, increasing to 350 million in 2017.

During the discussion with investors, Walsh said the brownfield expansion would be achieved at a capital intensity of around $9 per ton, confirming the company’s competitive position as the lowest-cost supplier of iron ore in the world.

“Being the lowest-cost producer is not about a competition, or a bid to secure bragging rights. Rather, it’s fundamental to the health of our business. The global iron-ore market is in a period of transition, with high-cost supply being supplemented by low-cost production,” said Walsh.

“And major industry shifts of this nature never take place in a smooth and uniform manner, so we can expect continued bumps before the market settles at a new equilibrium.”

Despite depressed prices for iron ore, Walsh was unapologetic about his company’s part.

“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 said.

“This is rational, normal economics. It’s what typically happens across a range of commodities, not just iron ore.”

As iron ore prices continue to hover around $50 tons per ton, Rio Tinto has cemented its position as the top iron ore producer, maintaining the margin between itself and higher cost production.

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