Coal iron ore price diving is within expectation - Rio Tinto CEO

At a recent event in Brisbane, Rio Tinto CEO Sam Walsh emphasized that the recent drop in coal and iron ore prices should not be overinterpreted. He expressed strong confidence in the long-term potential of the Chinese market, citing its steady economic growth as a key driver for sustained demand for mineral resources.

Speaking at the launch of the Copper and Coal Processing Center, Walsh noted that the decline in commodity prices, along with reduced steel production in China and earlier signs of tightening credit conditions, are all interconnected factors. While some may find this surprising, he pointed out that the Chinese government has been clear about its stance on reducing excess production capacity, stating that the country's steel output will not reach the previously anticipated 80 million tons.

Despite these challenges, Walsh highlighted that the Chinese market remains robust, and Rio Tinto’s iron ore production costs—currently at just $20.7 per ton—are among the lowest in the industry. This gives the company a competitive edge even amid falling prices.

Last week, iron ore prices hit a 12-month low, but they rebounded sharply by 2.4% to $107.4 per ton on Wednesday. Walsh acknowledged the recent recovery but stressed that the extent of the rebound will ultimately depend on market forces.

In other developments, Walsh also addressed Glencore’s bid for Rio Tinto’s Hunter Valley coal mine, suggesting that Glencore would need to raise its offer to meet Rio’s expectations. Meanwhile, discussions between Rio Tinto and Canon Costrata regarding a potential merger of their coal assets in New South Wales continue. Both companies have been evaluating each other’s operations, a process that is expected to take time.

However, there are indications that Glencore’s current proposal falls short of what Rio Tinto is seeking. Walsh reiterated that Rio’s coal mines have long lifespans and can deliver high-quality output. If any party wishes to make a meaningful offer, it must reflect the true value of the assets.

Additionally, the Oyu Tolgoi copper and gold project in Mongolia is set to face a critical deadline at the end of March. Walsh confirmed that Rio Tinto will not rush to make decisions as the deadline approaches. Instead, the company is preparing an investment plan aimed at restarting the project and ensuring its long-term success.