China iron ore market "steady as it goes" - Rio

SYDNEY Thu May 24, 2012 6:48am BST

Rio Tinto's Iron Ore Chief Executive Officer Sam Walsh gives a speech at the Asia Society Sustainability lunch in central Sydney May 24, 2012. REUTERS/Daniel Munoz

Rio Tinto's Iron Ore Chief Executive Officer Sam Walsh gives a speech at the Asia Society Sustainability lunch in central Sydney May 24, 2012.

Credit: Reuters/Daniel Munoz

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SYDNEY (Reuters) - Rio Tinto (RIO.AX) (RIO.L), the world's No.2 producer of iron ore, sees no signs of a slowdown in demand from top consumer China and still plans to almost double its output of the steel-making ingredient by 2016.

Slowing growth in China has rattled commodity markets in recent weeks, prompting sharp falls in some raw materials prices on fears demand will slump.

Some Chinese buyers have defaulted on coal and iron ore contracts and others are deferring deliveries following a drop in prices, traders said this week.

But Sam Walsh, the head of Rio Tinto's iron ore division, said the company was seeing little evidence of such turmoil.

"We're not physically seeing it on the ground," he said, describing the China market as "steady as it goes" in the short-term.

China's factories faltered in May as export orders fell to two month lows, a private sector survey showed on Thursday, suggesting surprise weakness in April's hard economic data persists even as policymakers seek to shore up growth.

Shares in Rio traded down 0.5 percent, having tumbled to a near three-year low last week amid concerns about the growth outlook and spending plans.

Rio, along with other big diversified miners including BHP Billiton (BHP.AX) (BLT.L), Vale (VALE5.SA) and AngloAmerican (AAL.L), are beefing up iron ore divisions in anticipation of long-term demand despite the short-term set-backs in China.

Rio is already committed to lifting yearly output capacity at its main Pilbara mines by 23 percent to 283 million tonnes. It has a proposal before its board to increase that to 353 million tonnes by the first half of 2015.

"At current estimates, we have options to expand to a global annual capacity approaching 450 million tonnes by 2016, when Canada and our new project in Guinea are added in," Walsh told a business luncheon in Sydney.

PILBARA EXPANSION

Walsh reiterated that a decision on the Pilbara expansion was on course to be made within months.

BHP also has plans to expand its Australian iron ore mines. The company's chairman, Jac Nasser, said last week BHP would not meet its five-year, $80 billion capital expenditure plan, but did not mention which areas may be pushed back.

Analysts say big iron ore expansion and infrastructure projects in the Pilbara, where margins are among the industry's fattest, are less likely to be affected.

However, smaller iron ore players are struggling to raise funds for development projects, with access to credit more difficult and investors more wary.

Also on Thursday, China's Hanlong Mining put back its $1.3 billion takeover of Australian-listed Sundance Resources (SDL.AX) by six months amid delays over funding and consents.

Sundance is developing a $4.7 billion project on the border of Congo and Cameroon in western Africa.

(Writing by Lincoln Feast; Editing by Ed Davies)

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