(Reuters) - High-cost iron ore producers are “hanging on by their fingernails”, Rio Tinto Chief Executive Officer Sam Walsh said on Tuesday, as miners fight for survival in the face of falling metal prices amid a glut and weak demand.
Over the past five years, small producers have added 400 million tonnes of capacity, Walsh said in an interview with Bloomberg Television.
“Most of that tonnage falls into the high-cost category. So at the moment, those people are hanging on by their fingernails,” he added. “But sooner or later the adjustment will take place.”
The spot iron ore price [.IO62-CNI=SI] fell to its lowest since at least 2008 at $37 (£24.4) a tonne last week amid shrinking demand for the steel-making ingredient in major consumer China.
Rio as the world’s lowest cost producer is still profitable even as prices have slumped.
When asked if prices could slide as low as $30 a tonne, Walsh said it would not be able to remain there long due to the large number of mines that would shut down.
“It’s not sustainable. It is fantasy land at that level.”
Iron ore supply is dominated by Brazil’s Vale, followed by the giants of Western Australia’s vast Pilbara deposits, Rio Tinto, BHP Billiton and Fortescue Metals Group.
The fall in prices is forcing mining companies across the board to cut jobs, investment and costs.
Glencore, Anglo American and Freeport-McMoRan Inc have suspended dividends and cut capital spending as the commodities’ price downturn enters its fifth year.
Walsh said dividends were still on Rio Tinto’s radar screen.
“Personally for me, they’re very, very important. We have shareholders who have invested in our business, they’ve put their faith in us, and then I believe they need a fair return,” Walsh said, who also acknowledged that 2016 was going to be another tough year.
Reporting by Olivia Kumwenda-Mtambo. Editing by Jane Merriman