Why miners shoot themselves in the foot

Natural resources

Glencore's proposed merger with Rio Tinto in the summer was all about iron ore. It is the second most important commodity after crude oil and the cause of untold headaches in the mining sector at the moment, says Fidelity's Tom Stevenson.

The reason: there has been a slump in the iron ore price this year as the mining industry has performed its usual trick of over-investing in supply just as demand begins to fall. Just like property developers, miners seem doomed to always miss the boat. Iron ore is a key component in steel-making. It has therefore been the main ingredient in China’s urbanisation over the past decade or so. As a result, it accounts for the lion’s share of profits at some of the world’s biggest mining companies – such as Vale, Rio Tinto, and BHP Billiton. Those giant producers are unsurprisingly keen to...