Rio Tinto: ore full

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Strategy is subjective. On Tuesday, Rio Tinto said it increased iron ore output one-tenth in 2015 year-on-year, even as average pricing slumped two-fifths, to $48. It intends to increase production 7 per cent this year. The logic behind Rio’s expansion is that profit is all about cost.

The more ore it produces, the lower this cost base becomes. In the first half of 2015 cash costs in the Pilbara, for instance, fell to $16 per tonne from $19 the prior half.

That looks like a nice margin. Prices could get worse, though. China’s economy is shifting away from heavy industry and fixed asset investment. While this is nothing new, and has already hurt the balance of supply and demand for steel, and thus iron ore, the story is not yet over. On Tuesday came the first sign of the previously unthinkable: in 2015 China’s steel output dropped for the first year in 25. Growth can turn to contraction. Harsh, objective, facts.

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