March 29, 2017 / 8:16 AM / 5 months ago

Rio says reboot in Chinese iron ore production may lead to volatility

A Rio Tinto logo is displayed on the front of a wall panel during a news conference in Sydney November 29, 2012.Tim Wimborne

PERTH (Reuters) - The potential restart of idled Chinese iron ore capacity will cause the most uncertainty for prices in 2017 and is likely to add to volatility for the rest of year, said a senior official of the world's No. 2 iron ore miner Rio Tinto (RIO.AX).

A surge in iron ore to a 30-month high of $94.86 a tonne .IO62-CNO=MB last month has prompted some Chinese producers to consider reopening mines shuttered years ago in a sector downturn.

Strong steel prices in top consumer China had fuelled iron ore's rally and while the raw material has come off February's peak, it remained above $80 a tonne this week, up 47 percent since the end of September.

"Additional capacity in Brazil and Australia is already reflected in iron ore prices, so the potential reboot in Chinese iron ore production is the main source of uncertainty and therefore the likely factor that will result in price volatility," Kellie Parker, Rio's managing director for planning integration and assets, told an industry conference on Wednesday.

BHP Billiton (BHP.AX), the world's third-biggest iron ore producer, expects to see some idled iron ore capacity in China returning to the market, but could not estimate how much.

"We think if the price maintains the level that is attractive, you will see some (capacity return)," Edgar Basto, president of BHP's Western Australia Iron Ore Asset, told reporters at the same event.

Basto also said he expects some downward pressure on iron ore prices amid high stocks at China's ports.

"This current number we're at is a relatively high level...I think that in the second half we will probably see some pressure on the price," he said.

Stockpiles of imported iron ore at China's ports reached 132.45 million tonnes last week, the most since at least 2004, according to SteelHome consultancy. SH-TOT-IRONINV

But both miners see continued firm demand for steel in China and elsewhere in Asia including India.

"Over the longer term we believe there is still room for Chinese steel production to grow," Rio's Parker said, adding that this will be driven by demand for manufactured goods including cars and machinery.

"Chinese steel demand is expected to grow despite a moderation in the growth rate," said Basto.

BHP is on course to lift its production capacity to 290 million tonnes by the financial year ending in June 2019, partly as the rail maintenance programme on its iron ore network in Western Australia may be finished ahead of schedule, said Basto.

Writing and additional reporting by Manolo Serapio Jr.; Editing by Christian Schmollinger

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