Rio CEO Sees Pressure on Rivals If Iron Ore Prices Extend Slide

Rio Tinto Group (RIO) Chief Executive Officer Sam Walsh said a further 13 percent slide in the price of iron ore would place his competitors under pressure.

The price of iron ore delivered to China has slumped 31 percent this year and last week retreated to $91.80 a dry metric ton, the lowest in 20 months. Goldman Sachs Group Inc. last month forecast the price would average $109 a ton this year before dropping to $80 ton next year as slowing steel production in China helps to build a supply glut.

“We are the lowest-cost producer in the world with costs of $20 per ton compared to the price around $92 a ton; I think we’ll be OK,” the 64-year-old Australian said today in an interview with Bloomberg Television. “I don’t think we’re going to go down to $80 or else a lot of my friendly competitors are going to disappear.”

Rio is the world’s second-biggest iron ore producer and last year derived about 88 percent of earnings from the steelmaking raw material. BHP Billiton Ltd. (BHP), Rio Tinto and Brazil’s Vale SA (VALE5), the three-biggest mining companies, last year controlled about 60 percent of the $170 billion global iron ore trade.

Last month iron ore capped a sixth monthly drop in the longest losing run on record as rising supplies from Australia and Brazil spur a global glut. Australia’s third-biggest iron ore exporter, Fortescue Metals Group Ltd. (FMG), last week said there could be further losses, with a risk prices may retreat to $80 a ton, the lowest level since 2009.

“I think that $80 is too low, I suspect a level somewhere north of $100 is probably more realistic,” Walsh said today. “We are confident with our projections that as we go forward the expansions that we’re making will be justified, they will be required by the world.”

Rio dropped 0.7 percent to 3,097 pence by 11:44 a.m. in London, where the stock has retreated 9.1 percent this year.

To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Caroline Hyde in London at chyde3@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net Alex Devine, Tony Barrett

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