Rio Tinto Outlines Next Phase In Long-term Strategy

After investing “millions” in a “bottom-up interrogation” of Rio Tinto’s comparatively bullish expectation for peak demand in China, iron ore boss Andrew Harding now takes intimately detailed comfort in the investment case that inspired his $US15 billion growth story.

On Thursday, Rio Tinto forecast 2.5% average annual growth in global steel demand for the next 15 years. And that Chinese crude steel production will reach one billion tonnes by 2030. Rio said today that it expects 120 million tonnes of marginal iron ore supply to exit the market this year, with a further 45 million tonnes “at risk” of exiting. BHP now forecasts production to peak in the mid-2020s at between 935 million tons and 985 million tons, down from as much as 1.1 billion tons. It has dropped 15 percent this year as concern over faltering China growth has sent iron prices tumbling 20 percent in 2015, eroding profits for the largest producers.

Steel demand in China, consumer of half the world’s supplies, is expected to fall this year for the first time since 1995.

Rio Tinto chief executive Andrew Harding.

Rio Tinto signalled on Thursday it will continue to boost iron ore production but has yet to give construction approval for a new mine in Australia amid board promises to rein in spending. In today’s investor presentation, Rio pointed out that China will need to start replacing lots of the stuff they’ve built with all that steel.

The miner has used technology like driverless trucks and surveillance drones to shave off $200 million in maintenance capital expenditure, and the falling Australian dollar and energy price are giving it plenty of breathing space even with the depressed iron ore price that’s struggling to stay above $US50 a tonne.

The company has demonstrated how the completion of its world-class iron ore expansion project in Western Australia will deliver significant shareholder value as the sector transitions through the ongoing volatility in global commodity markets.

“This is the industry’s “New Normal”, in which producers at the lower end of the cost curve will maintain their competitive advantage, but higher cost producers will be exposed”, the company said when reporting its half-yearly results last month.

Rio this afternoon said it intended to rise to the cost challenge posed by its chief Pilbara rival, saying it was already close to running at the $US15/t cash cost levels BHP said it hoped to achieve this financial year.