(Minews) - Rio Tinto PLC dug up record volumes of iron ore in Australia last year, adding to a ballooning global glut that has driven down prices of the commodity to their lowest level since 2009.
On Tuesday, Rio Tinto reported an 11% rise in full-year production of iron ore to 295.4 million metric tons, slightly ahead of its target of 295 million tons. The Anglo-Australian mining company also produced more copper despite the softening price of the industrial metal.
Rio Tinto has been expanding its operations in the Pilbara iron-ore mining hub of northwest Australia in a bet that China will need more of the commodity to make steel for its skyscrapers and for industries such as auto manufacturing, even as its economy slows. China buys three in every five tons of iron ore traded by sea, with Australia its biggest supplier.
But the strategy of swamping the market with more iron ore it isn’t without its critics, including Glencore PLC, which approached Rio Tinto’s board about a takeover in July. Several major banks, including Citigroup and UBS, recently scaled back their forecasts for iron-ore prices. Citi now estimates a full-year average of just US$58 a ton this year.
Executives at Rio Tinto, which runs the world’s No. 2 iron-ore business by volume, behind Brazil’s Vale SA, shrug off the impact of rising supplies. They say the scale of Rio Tinto’s business and ore quality allows the company to produce material profitably and at a significantly lower cost than competitors.
It now expects to dig up 330 million tons from the Australian operations it controls in 2015, the company said Tuesday.
Rio Tinto aims to increase production of iron-ore in the Pilbara to at least 350 million tons by 2017 and has spent billions of dollars to build more berths at its Cape Lambert port and expand rail lines in the Pilbara. If management applied the brakes, one of Rio Tinto’s competitors would simply take the opportunity to grab a bigger market share, Andrew Harding, the company’s iron-ore chief, has said previously.
Analysts expect profits from iron-ore mining to provide Rio Tinto with the firepower for a multibillion-dollar capital return to shareholders in February, when it announces its full-year earnings.
Still, iron ore was one of the worst-performing commodities of 2014, and few analysts expect a recovery anytime soon. Prices tumbled to around US$70 a ton from more than US$130 at the start of last year, triggered largely by the surge in supply from Australian mines. Rio Tinto’s Australian competitors, BHP Billiton Ltd. and Fortescue Metals Group Ltd., also raised production sharply.
BHP Billiton , the world’s third-largest iron-ore miner, is due to report its production figures for the six months through December in a regulatory filing Wednesday.
Analysts are also raising concerns about the ongoing strength of Chinese demand. Although China imported record volumes of iron ore last year, it also increased exports of finished steel products. That has led some analysts to question whether China’s own demand for steel has softened.
Rio Tinto recorded mixed output for its other divisions. Mined copper output rose 4% in 2014 to 603,100 tons.
Semisoft and thermal coal production, meanwhile, fell to 25.1 million tons, down 6%.
