Low iron ore prices no surprise to Rio Tinto

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This is because such a price had always been the average since the mining major entered the iron ore business.

The prices recorded when the market peaked have historically been unsustainable, he said in a company publication released on Friday June 19.

Benchmark iron ore prices slumped to a record low of $47.08 per tonne cfr China in early April this year, although they have since recovered. Metal Bulletin’s 62% Fe Iron Ore Index stood at $61.77 per tonne on Thursday June 18.

Market sentiment remains gloomy amid sluggish Chinese steel demand and prices. New iron ore supply that is expected to come online later this year is also adding to the bearish outlook.

Harding, however, noted that “this is exactly the time when it pays to be at the bottom end of the cost curve”.

“At Rio Tinto, we can make money on every tonne we sell, and we can indeed sell every tonne. So we will continue to make maximum use of the infrastructure we have installed for our operations,” he said.

The miner’s historical data shows that its iron ore strategy “makes the most sense”, he added.

“If we continue to execute our strategy, we’ll be very successful.”

Harding’s comments came on the back of Fortescue Metals Group chairman Andrew Forrest’s remarks on iron ore production cuts.

Forrest had called for BHP Billiton and Rio Tinto to reduce their output to combat oversupply, a call that resulted in BHP defending its iron ore strategy repeatedly.

Harding believes high-cost producers will go out of business unless they can cut costs “dramatically”.

“We always expect there will be attempts by governments to provide relief to domestic producers, in the form of tax breaks for instance. But the impact of that is only likely to be very minor in the scheme of things and, in my estimation, will make no difference to the outcome,” he added.

Harding remains bullish over the long-term demand for iron ore from both developing and developed countries.

“There’s no doubt in my mind about the strong long-term outlook for iron ore, since its growth is intrinsically linked to population and quality of life,” he said.