Rio Tinto Faces Iron-Ore Doldrums Amid Slump It Helped Along

Rio Tinto's iron ore profit slumped 49% to $4.1 billion in the first half

Rio Tinto Group’s iron-ore earnings are being hammered by a collapse in prices it helped create.

Profit at the iron-ore division fell by half from a year earlier with limited prospects of recovery. The price of the steelmaking raw material won’t exceed $65 a metric ton until 2019, according to estimates compiled by Bloomberg. Iron ore traded at $56.4 a ton on Thursday. Citigroup Inc. said last month that the best bet is to prepare for further losses.

Aug 7 rio profit

Rio, like its biggest rivals, is confronting the effect of a price crash to the lowest in at least six years as Chinese growth slows and after the company and its peers expanded output. The world’s second-biggest miner reported on Thursday that first-half earnings before interest, taxes, depreciation and amortization from iron ore fell 49 percent to $4.09 billion.

Rio, Vale SA and BHP Billiton Ltd. have expanded output, forcing higher-cost competitors out of the industry and helping them maintain their market shares. The expansions coincided with slowing demand in China, the biggest consumer, where steel production is forecast to contract as much as 2 percent this year, the first decrease since at least 1990.

Aug 7 iron price

“The company is hunkering down for tough times,” Investec Plc said, commenting on Rio’s outlook. “The next six months are likely to be an even more challenging period, given the price declines we have seen so far, with the anticipated oversupply of iron ore yet to fully play out.”

Full-year iron-ore Ebitda will be $7.7 billion this year and fall to $7.4 billion in 2016, according to analyst estimates posted on Rio’s website.

Chief Executive Officer Sam Walsh cautioned Thursday that a return to the iron-ore glory days was unlikely. “It will still be a healthy place to be, but not the heady heights.”

Aug 7 rio ebita

Iron ore contributed 54 percent to Ebitda in the first half. As recently as 2012 it added more than 80 percent to profit as the metal traded above $130 a ton.