Performance
Outlook
The operations of RTIO are in broad alignment with the market demand for iron ore, with imminent expansions able to match increased demand. There is clearly a consolidation of the industry under way, during which time the advantages of Rio Tinto being the only producer with a truly global supply strategy should become more apparent.
RTIO will maintain its focus on creating value through reducing discretionary costs and cutting waste wherever possible to preserve margins. In early 2009 an organisational restructuring was under way to eliminate 4,400 full time equivalent roles. Capital expenditure reduction targets for 2009 and 2010 are estimated at US$5 billion, comprising US$1.4 billion in 2009 and US$3.6 billion in 2010. Other cost reductions are expected to be achieved through reduced market pressures on input costs and the implementation of various procurement savings.
While reduced iron ore demand has reduced the urgency of RTIO's capacity expansion, in many cases RTIO will postpone rather than cancel its expansion projects. Many expansion projects are sufficiently advanced to enable a rapid resumption in response to increased demand (such as the Automated Train Operations project in the Pilbara).
In every case, increases in market demand will be the key factor. RTIO has invested a substantial portion of its earnings since 2003 in expanding and improving its production network, including developing two world class ports capable of maintaining a 220 Mt/a capacity. This has left it in an ideal position to capitalise on a market recovery.
