Rio Tinto is not backing down on its prediction that Chinese steel production will peak at 1 billion tonnes by 2030, and says the world needs new iron ore supply to meet demand.
Rio appears on track to press the button its Silvergrass expansion project by June.
Iron ore chief executive Andrew Harding stressed that the miner had "rigorously" revisited its analysis on peak steel this year, and will reiterate its position at an investor day in Sydney on Thursday afternoon in Sydney.
And Rio said iron ore demand will increase at 2 per cent a year to 3 billion tonnes of iron ore by 2030, from about 2.1 billion in the current year, with the miner saying "new supply is required". The lion's share of the new demand will come from outside China, from emerging markets in Asia, and Rio says the seaborne market will account for 50 per cent of the new supply. By 2030, India will be the second biggest consumer of steel, behind China.
It comes after BHP Billiton chief Andrew Mackenzie last week conceded that peak steel production in China will be lower than the mining giant's previous forecasts, by between 25 million and 165 million tonnes, while insisting the Chinese market is not impossible to read.
About 1.5 tonnes of iron ore is needed to make one tonne of steel.
Rio said on Thursday that non-Chinese steel demand is expected to increase by 65 per cent by 2030, from about 920 million tonnes to 1.5 billion tonnes. India's share of the rest of world demand, outside China, will double to 20 per cent by 2030.
Rio is tipping 2.5 per cent average annual growth for steel demand across China and the rest of the world over the next 15 years, against 3 per cent annual GDP growth.
China's transition toward high-income status involves a structural transition to slower growth.
Silvergrass green light
Rio finished in May the Pilbara infrastructure needed for its target nameplate capacity of 360 million tonnes of iron ore production a year but it has resisted putting a target on when it will meet that.
It needs to build a new mine in the Pilbara, called Silvergrass, to hit the 360 target, which the Rio board is expected to give the green light by June next year.
Rio is now doubling down on cost cutting, productivity and automation to protect its margins and squeeze as many tonnes as possible from its existing infrastructure.
For example, Rio technology chief Greg Lilleyman said automation would shave $US200 million a year from maintenance costs for the next three years.
Cash costs, the key component of a miner's breakeven price that it can control, are about $US15.20 a tonne for industry leader Rio, about $US1 to $US1.50 a tonne ahead of nearest rival, BHP.
BHP revised its Chinese peak steel forecast date to between 935 and 985 million tonnes, compared to previous guidance of 1 to 1.1 billion tonnes, but kept the target date at the mid 2020's.
'Impossible' to predict
While Glencore chief executive Ivan Glasenberg last month declared the Chinese market was "impossible to read", Mr Mackenzie disagreed.
"We don't find China impossible to read, we've been at this game for decades, and I think by and large we have made forecasts about China and we've made very sound business decisions off those forecasts that have proved to be correct.
"I don't agree that China has not articulated its forward strategy well. I think it's clear but you have to look deeply and you have to look across all the sectors and that's what we do."
The miner expects 120 million tonnes in marginal iron ore supply is expected to exit the market in 2015, with a further 45 million tonnes 'at risk' of following suit. Rio had previously said 80 million tonnes would fall out in the year, with 85 million at risk, but updated that last month, when it posting a 43 per cent decline in underlying earnings to $US2.9 billion.
Sourc: afr.com
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