Rio Tinto's profits have exceeded estimates. Photo / Thinkstock
Rio Tinto's profits have exceeded estimates. Photo / Thinkstock
Rio Tinto Group's Sam Walsh said if the second-largest mining company cut iron ore output after prices sank, forfeited supply would be made up by rivals with higher costs, and that wouldn't be in his shareholders' interests.
"Guess what happens when you take 100 million tonnes off?" the chief executiveofficer said last week, after Rio reported full-year profit that beat estimates, record iron ore production and a US$2 billion ($2.6 billion) share buyback.
"The price goes up, and all those people that went out of the market come back into the market. And guess what? The price gets back to where it was and, whacko, we would be down 100 million tonnes."
The raw material fell 47 per cent in 2014 and extended losses this year as the lowest-cost producers including Rio boosted output and spurred a glut, wagering that less efficient miners will curb supply or shut mines.
The surplus will more than double to a record this year as low-cost suppliers keep expanding, Australia & New Zealand Banking Group said in a report last week, cutting price forecasts through 2018.
"Now I know there are some people hanging on by their fingernails," Walsh said. "You can only do that for a certain time and sooner or later you've really got to recognise the reality of life."
Ore with 62 per cent content at Qingdao rose 0.1 per cent to US$62.27 a dry tonne on Thursday, according to Metal Bulletin. The price had fallen on Monday last week to US$61.20.
Rio stock rallied 6.5 per cent in Sydney on Friday, the biggest one-day advance since 2009.
