Rio Tinto makes a strong case for growth in Chinese steel production

Rio Tinto has reiterated predictions that China will produce one billion tonnes of steel by 2030, stating long-term demand for iron ore is strong despite the commodity’s price plunge this year.

Speaking at an investor seminar in Sydney, Rio outlined the next phase in its long-term strategy, including plans to ramp up production in 2017 to 350Mt.

The mining giant said its plans to grow iron ore output are underpinned by projections for 2.5 per cent average annual growth for steel demand across China and the rest of the world over the next 15 years.

Rio said its analysis confirms that Chinese crude steel production is expected to reach around one billion tonnes by 2030, while emerging markets will also play an increasingly significant role in the iron ore market, with non-Chinese steel demand expected to increase by 65 per cent by 2030.

According to Rio, this growth will come from new buildings, infrastructure, machinery and transport.

Rio’s one billion tonne prediction is at odds with BHP Billiton which last week revised Chinese steel production forecasts to 935 million-985 million tonnes.

It also contradicts the forecast of Li Xinchuang, deputy secretary-general of the China Iron and Steel Association, who recently said the country's steel production would not reach the one billion mark. 

Xinchuang said steel production in China would not grow beyond 900 million tonnes.

“It cannot (get to one billion), trust me, I have been in the business 30 years,” he said.

"We understand it cannot go over 900 million tonnes — we think roughly 800 million to 870 million.”

However Rio’s iron ore boss, Andrew Harding, was confident the company had the right estimate.

“The fundamental difference (between Rio and other forecasters) is we believe China, as the second-largest economy growing to the largest, will become a significant exporter of steel-based products,” Harding said.

“That is based on studying other countries and their developments, like Japan and South Korea, the US, and Germany. We just believe China will go down a similar path.”

Rio said the completion of its iron ore expansion project in Western Australia will deliver maximum value for shareholders and stakeholders.

The miner has reduced iron ore operating costs reduced by almost $US1 billion compared to 2012, and said predictive analytics and enhanced maintenance planning systems will reduce maintenance costs by $US200 million a year over the next three years.

Automation is also delivering significant productivity benefits and savings. Rio said autonomous trucks are 12 per cent more productive than the manned fleet and there has been a 13 per cent reduction in load and haul costs due to autonomous truck efficiencies.

So far, 400 million tonnes of material has been moved by autonomous trucks in the Pilbara.

Rio said there were some 400 initiatives underway across the Pilbara to identify further savings and improve productivity.

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