Jesse Riseborough London
IVAN Glasenberg says mining is suffering a crisis of confidence. That’s the latest salvo in a series of criticisms the billionaire chief executive of Glencore has fired at his larger competitors, who he accuses of acting against the industry’s best interests.
Last week, the 58-year-old offered an economics lesson to rival chief executives, who, he said, needed a better understanding of demand and supply. At an industry conference in Barcelona yesterday, attended by most of the chief executives his comments have been directed at, he escalated the rhetoric.
“Oversupplying markets regardless of demand is damaging the credibility of the industry,” he said, before illustrating this point with a series of slides highlighting mining companies as the world’s worst performing stocks over the past 12 months.
The bedrock for Glasenberg’s colourful analysis is the world’s iron ore market, which is dominated by BHP Billiton, Rio Tinto and Brazil’s Vale, and where Glencore has almost no presence.
After more than a decade of surging Chinese demand that catapulted prices to levels never seen before, the steel-making raw material has collapsed since the start of last year, slumping 53 percent thanks to a deepening global glut Glasenberg claims is due to over-investment by producers. The price slide has eroded profits for the big three exporters that supply almost half of the world’s needs.
Conference
The war of words has not sparked any significant retreat in strategy from BHP, Rio or Vale. Speaking at the same conference in Barcelona yesterday, both Andrew Mackenzie, the chief executive of BHP, and Sam Walsh, the head of Rio, were resolute in defence of their market leading iron ore businesses.
“I guess this is a very contentious question at the moment,” Walsh said. “The industry is going through transition and during the transition it’s tough times. I do feel for the high-cost producers.”
Over the past 10 years, Rio had invested $28 billion (R335.5bn) in its iron ore business and the company wanted “to see the return that flows from that”, Walsh said.
For BHP, the iron ore price slump has prompted a relentless focus on lowering its costs. Mackenzie outlined a new target yesterday that might enable BHP to usurp Rio as the lowest-cost producer in the world.
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We operate in highly competitive and cyclical markets, where earnings outperformance through the cycle depends on being the most efficient supplier, not supply restraint,” Mackenzie said.
“Any attempt to curtail low-cost supply in open markets only encourages the continuation – or entry – of more costly production.”
Glasenberg isn’t alone. Andrew Forrest, an Australian billionaire who founded iron ore producer Fortescue Metals more than 10 years ago principally to offer Chinese steelmakers an alternative to the major suppliers, has been a vocal critic.
In an opinion column in the Australian newspaper the Daily Telegraph on Monday Forrest accused BHP and Rio of damaging Australia’s economy, destroying jobs and hurting superannuation savings.
– Bloomberg