Posted on 19 Jun 2015
Steel demand soft for several years: Rio Tinto
Australia's biggest
iron ore exporter expects demand for steel in China to be dampened for
several years, in comments that are bearish for iron ore prices in the
short term.
Rio Tinto's iron ore boss, Andrew Harding, said a
short-term oversupply of housing in China would keep a lid on demand for
steel in the immediate future.
"In 2015 to date, China's steel
production has been much the same as last year. There is inventory in
the housing sector that has to be run down, and that will lead to a few
years of reduced consumption of new steel," Mr Harding said in a
magazine published by Rio Tinto.
"The Chinese economy is in
transition to what is being called the 'new normal', driven more by
domestic consumption than by infrastructure growth."
The Chinese housing market has been weak for more than a year now, crimping domestic demand for steel.
The
trend led to a 1.7 per cent slide in Chinese crude steel production
during the March quarter; the first quarterly decline in Chinese steel
production since records began in 1994.
Those results have given
credence to claims by the China Iron and Steel Association that Chinese
steel production has peaked at the 823 million tonnes produced in 2014,
and will not reach 1 billion tonnes per year, as predicted by Rio and
BHP Billiton.
The slump in domestic demand has prompted Chinese steel mills to ramp up exports in a bid to maintain sales.
Long-term prospects positive
But
Mr Harding said Rio would not be deterred by that short-term outlook,
and was focused on the more encouraging long-term demand outlook for
steel and iron ore.
"In China, more than 300 million people are
still expected to move into a more urbanised environment," he said.
"There are billions of other people living in India and parts of Africa,
South America and the ASEAN region, places that have both the stability
and the opportunity to grow.
"A year or two where there are
short-term effects running shouldn't sway us from the long-term outlook.
The long-term drivers are fundamentally sound and will keep driving
consumption forward. You don't have to have growth every year for the
long-term forecast to play out."
Benchmark iron ore prices have been below $US100 per tonne for 14 months and below $US70 per tonne for five months.
The
commodity was fetching $US61.51 per tonne on Thursday, and RBC expects
the price to average $US55 per tonne in 2015 and $US56 per tonne in
2016.
The bank expects iron ore prices to return to $US65 per tonne by 2019.
Rio
has been mining iron ore in Western Australia for more than 50 years,
and Mr Harding said that experience had prepared the company for the low
prices of today.
"Since we've been in
business, the average price has been around US$50 per tonne, so there
shouldn't be any surprise that we're at this level now," he said.
Some
smaller iron ore miners in WA and China have recently been given tax
relief by their respective governments in a bid to help them survive the
current downturn in prices.
Mr Harding predicted such measures, which are being enjoyed by the likes of Atlas Iron and BC Iron, will have little impact.
"We
always expect there will be attempts by governments to provide relief
to domestic producers, in the form of tax breaks, for instance. But the
impact of that is only likely to be very minor in the scheme of things
and, in my estimation, will make no difference to the outcome," he said.
