Rio Tinto Iron Ore: Challenges of Globalization in the Mining Industry

In 2006, Rio Tinto Iron Ore (RTIO) faced a number of challenges. The iron ore business has traditionally been dominated by a few large suppliers selling to relatively few large steel producers. However, the business environment changed with the rapid development of China. Demand grew faster than supply, leading to higher prices, especially in the spot market. Most of RTIO’s production was geared towards fulfilling long-term contracts and therefore could not fully benefit from high spot market prices. However, the new entrants were not tied to long-term contracts and were attracted by these high prices. Furthermore, many new Chinese iron and steel plants were small-scale operations that were geographically dispersed and did not secure their iron ore supplies before their plants were built. An important part of the iron ore supply chain was transportation. Traditionally, customers were responsible for shipping, but this did not meet the needs of small, remote Chinese factories. In addition to these changes in the market, RTIO had developed a new steelmaking technology that allowed the use of lower quality iron ore and also produced significantly less greenhouse gas emissions than traditional technologies. There have been several possible approaches to commercializing this technology, ranging from vertical integration to licensing.

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