Rio Tinto boss Sam Walsh says the giant miner remains confident China’s steel production has yet to peak, despite growing concerns its forecasts may prove optimistic.
The company has also defended its production tactics in the face of a call for a Senate inquiry from independent senator Nick Xenophon.
Mr Walsh, speaking at the Global Metals, Mining & Steel Conference in Barcelona, said a “new normal” was ensuring the “global demand mix (was) evolving and becoming less commodity intensive”.
However, with solid economic growth still expected — off a larger base, he suggested a bearish outlook on China and its future iron ore demand was overplayed.
“Everything we see continues to support our view of around 1 billion tonnes of Chinese crude steel production by 2030, which requires average growth of around 1 per cent per annum,” he said.
The comments contrast with recent analysis from the World Steel Association and prominent economist Ross Garnaut, who have contended Chinese steel production has peaked and will soon start back-pedalling.
While Mr Walsh noted Chinese growth was cooling somewhat, he expressed hope that emerging markets like India and Indonesia could be a key growth driver over coming decades.
Rio (RIO) has been under intense pressure over its plans to lift production through an oversupplied market, with Mr Walsh again defending the tactics as less efficient rivals fall out of the market amid a price slump.
“Mining is a cyclical industry. High prices brought in marginal producers, often based on overly optimistic assumptions and aggressive business models,” he said.
“These tonnes are now exiting the market, which is part of normal supply and demand.
“I am sure we will encounter further turbulence, as markets adjust and low grade, high cost material exits the market. But throughout this volatility, we will carry on maintaining our competitive position and delivering the best return for our shareholders.”
The miner reiterated its intention to push gradually toward its target production of 360 million tonnes per annum, saying that the infrastructure for such an expansion will be complete “in the next few weeks”.
However, no new capital will be invested to reach the target.
The comments from Rio echoed similar sentiments from BHP Billiton boss Andrew Mackenzie, who spoke of his firm’s plans to keep capital expenditure in the iron ore space in check while also maintaining production targets.
“The iron ore and metallurgical coal markets are currently well supplied and we do not expect to invest significantly more in these businesses at this time,” he said ahead of the same conference in Barcelona.
BHP said its capital and exploration spend would fall to $US9 billion ($A11.3bn) in the 2016 financial year, down from the current year’s $US12.6bn spend and also below previous expectations for $US10.8bn in the upcoming year.
The comments from Mr Walsh and Mr Mackenzie came as Glencore took a thinly-veiled swipe at BHP and Rio for their production tactics.
“Oversupplying markets regardless of demand is damaging the credibility of the industry,” Glencore said, noting that the mining sector had been the worst performer on markets over the past 12 months.
The Glencore broadside follows a string of attacks from Fortescue Metals on the subject, with Senator Xenophon calling for a Senate inquiry to analyse Fortescue chairman Andrew Forrest’s claims that Rio and BHP are driving out competitors to the detriment of the local economy.
“I want to look at the economic impact and the implications in terms of the budget,” Mr Xenophon said, according to The Australian Financial Review.
“Fortescue’s claims need to be tested.”
Mr Xenophon is likely to put details of a potential inquiry to a Senate vote tomorrow, though it is appears unlikely the major parties will support the call.
Source: The Australian
- metaljunction »
- Metal News
Metal News & Events
METALJUNCTION PUBLICATIONS
Coal Insights (English) Monthly
Coal Insights is a ready reckoner for anyone associated with coal. This publication is aimed at tracking everything related to coal in India.
India Coal Market Watch(English) Monthly
ICMW is a one-stop source for all news, data and research pertaining to coal demand, consumption, stocks, spot- and long-term prices with respect to the Indian Market.
India Steel Market Watch (English) Monthly
ISMW is a brand new high-end steel market report, covering all aspects of the steel industry in India.
Steel Insights(English) Monthly
Steel Insights delves into various facets of the domestic and global steel industry such as market fundamentals, raw material price trends, price forecasts etc.