Rio and Fortescue cut iron ore output as China weakens

By James Regan

SYDNEY (Reuters) - Rio Tinto (RIO.AX), the world's No. 2 iron ore miner, will slash output by as much as a third for the rest of this year, joining its Brazilian rival in trying to stem a fall in prices as Chinese steel demand slumps.

With the onset of a likely global recession cutting deep into steel use around the world, miners including Rio and Brazil's Vale (VALE5.SA)RIO.N have committed to cutting output by as much as 52 million tonnes, or about 6 percent of globally traded supply.

It remains to be seen whether those curbs will be enough to halt a collapse in benchmark Chinese spot iron ore prices, which have fallen from a record high of $197.50 a tonne in March to $63.50 last week, according to data from the Metal Bulletin trade journal. Spot prices have fallen below annual contract prices for the first time in years.

"There's more pain to come," said Australia & New Zealand Bank chief commodities strategist Mark Pervan. "China's largest iron ore port normally receives 10 vessels a week and they are currently receiving only four."

Rio said on Monday that it would cut its calendar-year production target to between 170 million and 175 million tonnes, a roughly 10 percent reduction from its previous target of 190 million tonnes.

"Operations continue to perform well but demand has continued to decelerate," Rio's chief executive, Tom Albanese, said in a statement.

With Rio having already mined 139 million tonnes in the first part of the year, its cuts will have to be even deeper in the fourth quarter. On a daily basis, Rio would have to cut output by 25 to 35 percent during the quarter to hit its lowered target, according to Reuters calculations based on its production rates.

Bigger rival Vale announced a 30 million-tonne cut last month, leaving only BHP Billiton (BHP.AX)(BLT.L) operating at full speed. BHP spokesman Peter Ogden said the company had no plans to cut output, but analysts said it was more a matter of when, not if, the firm would follow suit.