Fight for the future

Dec. 13, 2007
As I write, a global struggle is taking place over the future of a company many readers may recognize, Rio Tinto Ltd. Through one of its operating units, Rio Tinto Iron & Titanium, it supplies iron products and zircon sand to the metalcasting ...

As I write, a global struggle is taking place over the future of a company many readers may recognize, Rio Tinto Ltd. Through one of its operating units, Rio Tinto Iron & Titanium, it supplies iron products and zircon sand to the metalcasting industry. While the future of Rio Tinto is the story to follow, the issues surrounding this development have broader implications for the future of manufacturing.

Rio Tinto Ltd. is one of the giants in the global mining industry, which ironically makes it vulnerable to takeover. In early November, Rio Tinto found itself the target of a $134-billion approach by BHP Billiton, a rival mining group. Even in a market segment that has seen consolidation on a vast scale in recent years, this is extraordinary.

This is not a David v. Goliath tale of a plucky, innovative business staving off a faceless corporate entity. This is Goliath v. Goliath, and the logic of the takeover is not just that it would eliminate a rival to BHP, but that it would combine two of the world’s leading suppliers of mineral-based raw materials. It’s not a deal proposed out of necessity, but of opportunity.

Each year we survey FM&T readers to learn their assessments of the year that has passed and their outlook for the one ahead. For the past two years, our survey respondents’ leading concern, by far and away, has been the rising cost of raw materials. The attempted takeover of Rio Tinto may not impact North American metalcasters directly, but it is evidence of the global rush to access and control raw materials.

Our readers worry about foreign competition, too, but the threat presented by foreign competition is generally expressed in direct terms, i.e., how foreign producers of castings are challenging domestic operations for market share.

In fact, the expansion of manufacturing industries in developing economies increases demand for iron ore, bauxite, copper, and various other ores and minerals that are indispensable to producing steel, aluminum, and copper-based metals. Thus, foreign competition presents a challenge to domestic manufacturers even if their castings never arrive here. Whether they or not they understand how this is happening, our readers are indicating they are feeling the effect.

So, whether Rio Tinto fends off BHP, or finds an ally to protect it from the approach, or succumbs to the takeover, the story now developing is an allegory of the global economy, where scale and profitability are no defense against predators.

Moreover, both BHP and Rio Tinto are sprawling organizations with holdings and operations on virtually every continent. The proposed new company would gain considerable pricing advantages in China, and to no surprise it’s the steel industry there that is expressing the most concern about the prospect. But this is a deal beyond any national influence; there’s no government agency or regulatory authority that can wade in to defend either side. Only the investors will determine the outcome.

Our survey respondents express other major concerns, including medical insurance costs, training and keeping qualified workers, a shortage of skilled labor, and workers compensation costs. Each of these is a local or national problem calling for direct solutions; a reform of benefits laws, for example, or tax incentives to improve workertraining programs.

The raw materials shortage is the result of market conditions: high demand for limited resources, and limited supply because of logistics or physical and technological barriers that limit substitutions. There’s nothing new about it, except that it’s a problem that’s getting more acute.

What happens from year to year occupies a lot of print and broadcast reporting each December, and will again this month. What were the significant events of the past year, and what’s coming in the year ahead that will change how we think, or live? In the first case, it’s too soon to know. In the second, no one can predict.

But calendars just focus our attention on dates and events. What more commonly impacts our fortunes are circumstances. Raw materials are essential to manufacturing, and the expanding demand is raising their value. If Rio Tinto is taken over it won’t be the event that makes it so notable, but the causes, and the effects.

About the Author

Robert Brooks | Content Director

Robert Brooks has been a business-to-business reporter, writer, editor, and columnist for more than 20 years, specializing in the primary metal and basic manufacturing industries. His work has covered a wide range of topics, including process technology, resource development, material selection, product design, workforce development, and industrial market strategies, among others. Currently, he specializes in subjects related to metal component and product design, development, and manufacturing — including castings, forgings, machined parts, and fabrications.

Brooks is a graduate of Kenyon College (B.A. English, Political Science) and Emory University (M.A. English.)