Rio Tinto Limited boss thinks iron ore prices could hit new lows

The iron ore price has enjoyed a strong rebound over the last couple of months and taken the share prices of iron ore miners like Rio Tinto Limited (ASX: RIO) higher with it.

However, The Australian newspaper is reporting that Rio’s departing boss, Sam Walsh, still thinks the iron ore price could hit new multi-year lows soon enough due to the increased supply coming onto the market.

Mr Walsh reportedly told Rio Tinto’s annual general meeting today on the subject of iron ore: “There is more supply coming on, Vale are bringing on more, Roy Hill is bringing on more supply, FMG (Fortescue) seems to be progressively increasingly their volumes this year, those will have an impact on supply and demand“.

He’s not wrong either, as other iron ore majors like BHP Billiton Limited (ASX: BHP) continue to crank supply just as China exits a once-in-a-generation construction super cycle, which all suggests iron ore prices might head lower from today’s levels around US$60 per tonne.

In fact Mr. Walsh reportedly went as far as saying that he believes iron ore prices may retest their recent lows around $US35 per tonne: “I am somewhat more negative than some of the other people that are saying the market has actually bottomed.

When the boss of one of the world’s top three iron ore miners is flagging the possibility of another precipitous fall in iron ore prices it’s worth paying attention.

Rio Tinto also has the lowest production costs among all the miners and is therefore best placed to absorb steep price falls, but almost nothing can stop a potentially tumbling iron ore price taking the share prices of miners like Rio, BHP and Fortescue Metals Group Limited (ASX: FMG) down with it for the rest of 2016.

In all fairness nobody knows which way the iron ore price is heading over the rest of 2016, but investors chasing dividends and growth may be better off looking elsewhere…

Forget the Pilbara posse!!

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