TOKYO -- Anglo-Australian miners Rio Tinto and BHP Billiton, as well as Brazil's Vale, dominate world production of raw materials for steelmaking. This puts them in a position to aggressively expand output even as iron ore and other commodities get cheaper, putting still more downward pressure on prices.
Speaking with The Nikkei on Wednesday, Rio Tinto CEO Sam Walsh implied that the materials glut will be solved not by output cuts but by increased production and investment in efficiency, which could eventually force less-competitive miners out of the market.
The company's approach is similar to that of Saudi Arabia, a key member of the Organization of the Petroleum Exporting Countries, which refused to cut back on oil production and opted to rely on market mechanisms to rebalance supply.
Now that commodity markets have expanded and prices have become closely tied to financial-market developments, it has become harder for companies to prop up prices just by limiting production -- a strategy that worked well in the last century. However, the market-based game can be a cutthroat one, in which smaller players are driven out of business.
China and other emerging economies, meanwhile, are losing steam after experiencing spectacular growth in the mid-2000s. Even so, Walsh expressed confidence that global steel demand will keep growing, as industrialization progresses worldwide. That confidence also underlies Rio Tinto's aggressive investment strategy.