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Rio Tinto Sees 125 Mlnt Iron Ore Capacity Being Cut in 2014

https://en.steelhome.com [SteelHome] 2014-09-10 17:31:14

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Rio Tinto expects other miners worldwide to cut 125 million tonnes of iron ore capacity in 2014, roughly equal to the amount of new supply expected to come on stream from Australia and Brazil.

Iron ore prices have plunged 38 percent to five-year lows this year, largely due to a glut of low-cost ore from top producers, Brazil's Vale , Rio Tinto, BHP Billiton and Fortescue Metals Group .

The price plunge has been deeper and quicker than expected, and miners large and small have been predicting that high cost producers, mostly in China, would be forced to cut output in response to weaker prices.

"I think there's already some evidence, certainly in China, Indonesia, Iran, South Africa and Australia, we are seeing some more marginal players make decisions to take capacity off," Chief Executive Sam Walsh told Reuters on the sidelines of an event in Washington showcasing the company's pink diamonds.

"We are expecting that through this year 125 million tonnes of capacity will come off in response to lower prices," he said, adding that 85 million tonnes have already been cut, in line with expectations.

A cut of 125 million tonnes would be equivalent to nearly 10 percent of forecast global trade in iron ore for this year, and roughly equal to the 132 million tonnes of new supply forecast to come from Australia and Brazil in 2014.

Just this week, fledgling Australian producer Western Desert Resources, operating at a rate of 3 million tonnes a year, called in administrators as it was unable to work out a debt repayment schedule with its lenders.

UBS estimated at current prices junior Australian miners Gindalbie Metals Ltd , Grange Resources Ltd and Atlas Iron Ltd were loss-making.

Investors say the key question is how much production high-cost Chinese miners will cut, and some are not as confident as the mining companies that high-cost output will be cut rapidly.

"All I do know is the big producers continue to expand production. To the hopes that some people have that it's going to displace high-cost Chinese domestic production - good luck," said Tim Schroeders, a resources portfolio manager at Pengana Capital.

Source: Rio Tinto
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