Despite the downturn in prices, especially in China in the past year, Rio Tinto (RIO) remains confident in the outlook for demand for its iron ore.
It told a briefing on its iron ore business yesterday that it still sees global steel demand to rise by an average 2.5% a year until 2030.
Rio is the world’s No. 2 iron ore producer and it is now looking for demand outside of China to grow faster in coming years than from China itself.
It sees non-Chinese steel demand to increase 65% out to 2030, and reiterated an earlier estimate that China would produce one billion tons of crude steel a year by 2030.
In contrast to the continuing belief at Rio, rival BHP Billiton (BHP) last month trimmed its outlook for steel and iron ore demand.
BHP said in releasing its full year profit, that it had lowered its expectations of Chinese steel production, and now expects it to peak between 935 million tonnes and 985 million tonnes.
That still implies growth, but at a more modest rate. Fortescue Metals Group (FMG) believes Chinese steel production is close to peaking now, the China Iron and Steel industry reckons production peaked last year, a belief shared by quite a few non-industry analysts at investment banks and consultancies.
Rio said yesterday it expected to see "growing global demand for high-quality iron ore", as it pushes towards producing 360 million tonnes of iron ore a year, mostly from its mines in the Pilbara.
Iron ore chief Andrew Harding meanwhile said the miner was determined to deepen cost cutting at its operations in Western Australia’s Pilbara mining region, with "some 400 efficiency initiatives" being undertaken.
Like BHP, Rio is looking to drop the average production cost of Pilbara iron ore to less than $US15 a tonne. It is already just above that level and has halved in the past two to three years. Rio did concede at yesterday’s briefing that Chinese steel demand has stagnated this year – production is likely to be under 2014’s if the current drift lower in monthly output continues.
But it suggested 2016 would be a better year for iron ore and steel demand. Rio exported 302.6 million tonnes in the 2014 calendar year and currently expects to export 340 million tonnes in calendar 2015.
Rio has not said when it expects to reach 360 million tonnes per year, but has said it expects to reach 350 million tonnes by 2017, and the 360 million tonne target is expected to be reached soon after that.
To reach that it has to build the delayed Silvergrass mine in the Pilbara. That goes to the board next year. That will become the major mining investment decision in Australia next year, on present indications.
Rio shares eased half a per cent to $49.77, BHP shares were down 1.2% at $24.32.
