A bumper supply of iron ore at a time when demand from key markets like China is contracting has dragged the commodity price down more than 30% this year.
At the same time iron ore giants Rio Tinto and BHP Billiton have been ramping up production, leading some – including Fortescue boss Twiggy Forrest – to accuse them of squeezing out smaller, higher-cost producers.
WA Premier Colin Barnett has also attacked the mining giants, saying they are acting “in a concert way”. The falling iron ore price has led to revenue losses from royalties for Barnett’s government.
Rio Tinto boss Sam Walsh this week told the WSJ that claims the major players were squeezing out smaller operators were “absolute nonsense”.
Today on the wings of the G20 summit in Brisbane Walsh expanded on this, pointing out again that Barnett had approved of some of the investment decisions “upwards of five years ago” that led to the increased supply capacity, and saying that the giant miner’s margin on iron ore was a result of good management, not something “miraculous”.
“A long time ago we decided to invest $20 billion in these projects,” Walsh said on Sky News.
“We’re 60 million tonnes of the 240 million tonnes that have been brought on in Western Australia.”
Walsh said the attack that big producers are deliberately forcing out the smaller players has been “wrongly directed”.
“We’re in a commodity business and guess what? Prices go up, prices go down. The market responds, the market reacts,” he said.
“I can remember when iron ore was selling for $25 a tonne… It’s the normal cyclical cycle for iron ore.
“If I took off capacity there are 32 mines all around the world who would grab that capacity and supply. That wouldn’t be in the best interest of Australia to be quite frank and guess what? The price would stay where it is.”
Walsh said that, just like Rio did when he took over the top job in 2013, the smaller, higher cost iron ore producers would be looking to cut capex and improve margins.
“I’m sure they’re looking at their cost structures, their efficiency and productivity – all the things that we’ve done to get us where we are,” he said.
“People think it’s luck. People think it’s miraculous that we’re the lowest cost producer in the world.
“It’s not miraculous, it was strategic decisions that we’ve made during the last 45 years to position our business.”
Walsh said Rio is investing in technology including automated trucks, trains and processes which he hopes improve the company’s cost base to ensure it holds strong in the long term.
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