Rio Tinto Group said it's prepared to cut iron ore output if that'll improve cashflow, signaling a major step back from the industry's decade-long strategy to keep pumping ever-expanding supply onto the global market.
The world's second-biggest iron ore exporter is driven by margins and not by market share, Chief Executive Officer Jean-Sebastien Jacques told investors during a seminar in Sydney. The company wants to make sure "we maximise free cash flow coming" from its Pilbara iron ore system and "if it means reducing the volume we will do it," he said.
While Vale SA, the world's biggest producer, is continuing to expand supply, the Rio de Janeiro-based company this month said it will reduce higher-cost iron ore production to protect margins amid a global glut. The largest exporters in Australia are raising supply at the slowest pace in years after resisting pressure to limit increases in output through the collapse in prices that spanned 2013 to 2015.
Rio's comments "represent a shift in the major miners' attitude toward expansion, especially as supply growth has already been moderating," Dang Man, an analyst at Maike Futures Co. in Xi'an, said by phone. "If demand remains stable through next year, supply may call the shots on prices. Any output reductions in a relatively balanced market will be a boost for iron ore." Bloomberg
