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Reuters reports Rio Tinto chief executive Tom Albanese said an “aggressive” stance by unions, high labour costs and a potential downturn in world prices threaten plans for vast expansion of its key Australia iron ore operations.
Albanese said “assumptions that the floor price would not go much below $120 a tonne might be valid next year but not long beyond that.” The less than optimistic outlook from the world’s number two miner comes at the end of a week which saw iron ore prices drop more than 10%, almost wiping out the gains witnessed since October, when iron ore gave up $60/tonne signalling a sea change in the market.
“Our Pilbara business is designed to operate well and stay profitable in the 120 range,”Albanese told Inside Business but added that the cost pressures in Australia are “quite a bit higher” that the rest of the world. Rio hopes to double current production in the Pilbara – the heart of Australia’s iron ore mining – to 450 million, matching plans unveiled in September by the world’s number one miner BHP Billtion.
According to data from Steel Index (sub required), iron ore traded at $130.80 a tonne last week, the lowest since November 8. The 11% decline over the last week almost wiped out gains witnessed at the end of October, a month during which the price dropped $60/tonne or by almost a third.
India’s Business Standard reports overall buying activities from Chinese mills are likely to remain under pressure until December-end due to poor demand from the construction sector.
MINING.com argued in November that the longer term the outlook for iron ore prices are not rosy thanks in large part to the aggressive go-to-market strategy of the big three.
BHP, Vale and Rio Tinto control nearly 70% of the 1 billion tonne annual iron ore seaborne trade and thanks to their economies of scale have been flooding the market by concentrating on building market share rather than maximizing prices. This way the giants drive high-cost producers out of the business and crowd out any new players who want to enter the space. Read more…
MINING.com reported at the end of August on BHP and Rio’s aggressive output plans for Pilbara, which at the time stood at a combined 750 MTpa. BHP’s current iron-ore production capacity is 155 million tonnes a year and Rio’ is 225 million tonnes.
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3 Comments
WilliamBunter
Oh gee wiz, these words from a giant of a man who got Rio into debit to the rune of 34 billion odd, sacked 2 5th of the copanys staff, only to incant the “stronger for longer” chant. I see this as obvious.
Hsrivett
A typical comment of a business leader who wants to wipe out the competition. No,
the actions in the bond markets around the Euro crisis and the government reactions to it clearly demonstrate that inflation is on its way and prices will go higher – so will costs but the profitiability is still there and will be for a long time.
Frank T London
Rio have been linked to buying African Minerals LTD, the bigest find of high grade ore in 20 years. If there was no money in it why do this?