Australia’s iron ore giant has been accused by its competitors of continuing to ramp up production despite the oversupply situation.

Lourenco Goncalves, CEO of Cliffs Natural Resources, the largest iron ore producer in the United States, said that iron ore prices have fallen to below $50 per ton, and the revenue decline for major mining companies is far outpacing the reduction in costs. Despite the oversupply situation, industry giants continue to ramp up production—and have yet to achieve their goal of squeezing competitors out of the market.

Quoting Goncalves, Bloomberg reported that iron ore prices below $50 are bad news for everyone—including industry giants. Cost cuts simply aren't enough to offset the decline in their revenues, he said.

My view is very clear: the loss of revenue was entirely avoidable—it was self-inflicted.

In their imagined scenario, 60 million tons of capacity would disappear from the market this year, and another 125 million tons would exit next year. But in reality, things aren't like that at all—everyone is working hard to cut costs and find solutions; not much capacity has actually disappeared from the market.

Bloomberg, citing BHP spokesperson Emily Perry, reported that the company would not comment on Goncalves' remarks.

Rio Tinto, through Brendan Pearson, head of the Minerals Council of Australia, commented that competition in the iron ore market is open and transparent—and if this makes Goncalves uncomfortable, he’s perfectly free to withdraw.

Last week, with the expansion of low-cost iron ore production by companies such as Rio Tinto, BHP Billiton, and Brazil’s Vale, coupled with signs of further contraction in Chinese demand, iron ore prices plummeted to below $50. These companies believe they can keep costs under control, and by increasing production when prices remain low, they can gain market share and force less-efficient mining firms into bankruptcy.

Goncalves took over as CEO of Cliffs in 2014, promising to put an end to the company’s vulnerability to shocks in a market characterized by oversupply. However, as iron ore and steel prices declined, Cliffs’ stock price has plummeted by 73% over the past 12 months. Last year, Cliffs produced approximately 34 million tons of iron ore, while Rio Tinto produced 295.4 million tons.

Rio Tinto and BHP remain committed to not cutting production.

According to data from Metal Bulletin, the landed price of 62% iron ore at Qingdao Port fell by 0.8% yesterday to $49.11 per ton, reaching its lowest level since July 9. Year-to-date, iron ore prices have cumulatively fallen by 31%.

As previously reported by Wall Street Insights, Arnoud Balhuizen, BHP’s Global Marketing President, stated last month that despite some competitors being hit by low commodity prices, BHP will not cut production because its relevant businesses continue to generate cash flow for the company. Balhuizen said:

What sets us apart from some of our competitors is that we have large-scale, front-line businesses with high profit margins. Clearly, we’re not going to shut down businesses that can still generate substantial cash flow.

He believes that it’s perfectly normal for competitors to cut production as an economic consideration—but such cuts don’t necessarily help push prices higher. “If a business is operating at a loss, there’s no benefit to raising prices; in fact, such businesses shouldn’t even be in the market in the first place.”

Rio Tinto CEO Sam Walsh once stated that if Rio Tinto reduces production, the resulting supply gap will also be filled by other companies.

In August of this year, Rio Tinto reported that although its first-half EBITDA profit from iron ore fell by 49% to $4.09 billion, the company’s average profit margin remained as high as 54%. On September 3, Andrew Harding, head of Rio Tinto’s iron ore business, stated that Rio Tinto’s iron ore business is “one of the most attractive businesses in the world.”

In addition, Alan Chirgwin, Vice President of Iron Ore Marketing at BHP, stated that iron ore prices will continue to decline gradually until they reach a new equilibrium below $50 per ton. Depending on the cost structures of mining companies and their ability to cut costs, this price level will represent the upper limit of the breakeven point for major mining companies in Australia or Brazil.

Goncalves said that BHP’s view is that iron ore prices will continue to decline over the next few years, eventually reaching a new normal. “If they don’t change their behavior, don’t expect iron ore prices to rise significantly.” (Source: Wall Street Insights, by Zhang Jiawei)