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Rio Tinto’s Walsh rebukes mining critics

The chief executive officer of Rio Tinto Group rejected criticism of the biggest mining companies for the oversupply that’s put iron ore producers from Australia to Sierra Leone out of business.

“The industry’s cycles have caught some unprepared, and others looking for answers,” Sam Walsh, CEO of the world’s second-biggest mining company, said in a speech in London on Wednesday evening. “There also seems to be a view that you can talk markets into submission or bend reality to suit your will. Some even question the invisible hand of the market.”

Ivan Glasenberg, chief executive officer of Glencore, the Swiss metals and mineral producer and trader, has accused his biggest rivals of investing too much in new supply when prices were high. In May, the 58-year-old billionaire former coal trader even offered an economics lesson to CEOs who, he said, need a better understanding of supply and demand.

The Bloomberg World Mining Index of 79 stocks plummeted to its lowest in more than six years Wednesday. It’s slumped 58 percent from its 2011 peak as commodity prices tumbled on oversupply and concern China’s economic growth is slowing.

“There is no doubt our industry faces a number of challenges, some real, some of perception, and some of outright illusion,” Walsh said. “Talking the industry down risks becoming a negative feedback loop. It feeds public anxiety about our industry’s crucial role.”

Chinese demand

After more than a decade of surging Chinese demand that catapulted prices to record levels, iron ore has collapsed, declining 48 percent last year thanks to a deepening global glut. The price slide has eroded profits for the big three exporters, which supply almost half of the world’s demand, sparking sharp criticism in Australia from rivals like Fortescue Metals Group Ltd.

Still, there are reasons to be positive, according to Walsh. India’s economy will double in the next decade and China will grow more in the next ten years that it has in the past 25, he said.

The pace of urbanisation isn’t slowing either, Walsh added, citing a recent estimate that $57 trillion of infrastructure is needed in the next 15 years.

“The industry’s exploration spend is near a decade low. Industry capital spending is near its lowest in 30 years,” he said. “The current squeeze may well be providing the next cyclical upswing. Given the demand outlook I painted earlier we have every reason for long-term confidence.”

Bloomberg

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