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Rio Tinto’s Operating Environment: One of the Worst in History

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Commodity price environment

The operating environment for Rio Tinto (RIO) and other miners is one of the worst in history. Commodity prices (COMT) are touching multiyear lows in 2015. The outlook for 2016 isn’t very bright. The major concern is not the cyclical but the structural decline in commodity prices such as iron ore and coal.

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Stock performances for miners

Year-to-date (or YTD), iron ore prices have declined by 44%. This has led to a steep decline in prices of iron ore players as well. Of the big miners, Rio Tinto (RIO) has been the outperformer through December 14, 2015. Its stock price has fallen 28% compared to a fall of 38% for its nearest peer, BHP Billiton (BHP) (BBL). Vale SA (VALE) has seen a correction of 60%, while Cliffs Natural Resources (CLF) has had the worst fall of all, with a negative return of 73% in the same time period.

Other miners such as Freeport-McMoRan (FCX), Alcoa (AA), and Glencore (GLNCY) have also fallen considerably in 2015. It has prompted them to take drastic measures in terms of capital allocation and portfolio restructuring.

Takeaways from an interview with Rio Tinto’s CEO

In this context, Bloomberg held an exclusive interview with Rio Tinto’s CEO (chief executive officer) Sam Walsh. Walsh commented on the company’s growth prospects going into 2016. He also commented on the company’s outlook for China and where miners are in this changing consumption landscape.

In this series, we’ll look at Walsh’s views on the market and see how Rio Tinto is positioned for tougher times that are inevitably ahead.

We’ll start by looking at Walsh’s view on China in the next part of this series.

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