Glencore CEO Increases Rhetoric in Strategy Battle With BHP, Rio

Ivan Glasenberg says mining is suffering a crisis of confidence.

That’s the latest salvo in a series of criticisms the billionaire chief executive officer of Glencore Plc has fired at his larger competitors, who he accuses of acting against the industry’s best interests.

Last week, the 58-year-old offered an economics lesson to rival CEOs, who, he said, need a better understanding of demand and supply. At an industry conference in Barcelona on Tuesday, attended by most of the CEOs his comments have been directed at, he escalated the rhetoric.

“Oversupplying markets regardless of demand is damaging the credibility of the industry,” he said, before illustrating this point with a series of slides highlighting miners as the world’s worst performing stocks over the past 12 months.

The bedrock for Glasenberg’s colorful analysis is the world’s iron ore market -- dominated by BHP Billiton Ltd., Rio Tinto Group and Brazil’s Vale SA and where Glencore has almost no presence

After more than a decade of surging Chinese demand that catapulted prices to levels never seen before, the steel-making raw material has collapsed since the start of last year, slumping 53 percent thanks to a deepening global glut Glasenberg claims is due to over-investment by producers. The price slide has eroded profits for the big three exporters which supply almost half of the world’s needs.

Barcelona Conference

To date, the war of words hasn’t sparked any significant retreat in strategy from BHP, Rio or Vale. Speaking at the same conference in Barcelona on Tuesday both Andrew Mackenzie, CEO of BHP, and Sam Walsh, head of Rio, were resolute in their defense of their market leading iron ore businesses.

“I guess this is a very contentious question at the moment,” Walsh said in response to a question at the Barcelona conference. “The industry is going through transition and during the transition it’s tough times. I do feel for the high-cost producers.”

Over the past 10 years, Rio Tinto has invested $28 billion in its iron-ore business and the company wants “to see the return that flows from that,” Walsh said.

For BHP, the iron ore price slump has prompted a relentless focus on lowering its costs. Mackenzie outlined a new target on Tuesday that may enable BHP to usurp Rio as the lowest-cost producer in the world.

Cyclical Markets

“We operate in highly competitive and cyclical markets, where earnings outperformance through the cycle depends on being the most efficient supplier, not supply restraint,” Mackenzie said, responding to critics who have suggested the miners should rein in expansion plans. “Any attempt to curtail low-cost supply in open markets only encourages the continuation –- or entry –- of more costly production.”

Glasenberg isn’t alone in offering a dissenting voice.

Andrew Forrest, an Australian billionaire who founded iron ore miner Fortescue Metals Group Ltd. more than 10 years ago principally to offer Chinese steelmakers an alternative to the major suppliers, has been a vocal critic.

In an opinion column in Australian newspaper the Daily Telegraph on Monday Forrest accused BHP and Rio Tinto of damaging Australia’s economy, destroying jobs and hurting superannuation savings. He called on readers to ring their local member of parliament to express any concerns.

Australia’s the world’s largest exporter of iron ore and Forrest’s Fortescue the third-biggest shipper.

“I cannot just sit back and watch our economy, our jobs, indigenous advancement and people’s lives get destroyed,” Forrest wrote.

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