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Rio Tinto iron-ore CEO sees period of volatility

Wednesday, 22 February 2012 | 00:00
The iron ore market faces a period of volatility for perhaps the first six months of the year before stabilizing, Sam Walsh, chief executive officer of mining giant Rio Tinto PLC's iron ore division, said.
The steel needs of China and other developing countries is expected to ensure demand for the commodity remains strong long term, he added. A further three billion people are likely to urbanize by the middle of the century, led by the continued growth of China's economy, and followed by India and other parts of Asia and Africa--ensuring a robust need for iron ore to produce steel, said Walsh.
"The world is an uncertain place at the moment and we have seen some softness in China, but demand remains strong," Walsh, who also is CEO of Rio's Australian arm, told reporters during a weekend briefing in Perth.
China alone will require at least another 100 million metric tons of iron ore a year for the next eight years, including 600 million tons in that period to satisfy growth and 200 million to replace the expected exit of high-cost supplies, he said, adding that Rio plans to contribute about a quarter of this additional ore to China.
Rio is the second-largest supplier of iron ore by sea in the world after Vale SA (VALE). In Australia, it operates 14 mines, three port terminals and about 1,500 kilometers of rail, and is investing billions of dollars expanding its output of the commodity.
Prices for iron ore fell sharply from near-record levels late last year as steel mills curtailed production amid concern over the economic health of Europe, and as China, the world's biggest consumer of both steel and iron, tightened credit conditions. Prices recovered in the new year, although again saw some weakness in the last week or so.
"Iron ore prices are an enigma and a moving feast," Walsh said, adding volatility was expected to continue for the next several months.
Iron ore has become by the biggest driver of Australia's exports, helped by an enormous resource in the remote western Pilbara region and the country's proximity to China and other growing Asian economies.
Walsh said Rio's capacity in the Pilbara will increase by 5 million tons this quarter to 230 million annually, and it remains on time and budget to grow this to 283 million tons a year by mid-2013. It is currently looking at plans to further boost its annual output to 353 million tons by mid-2015, as it races against rivals including BHP Billiton Ltd. (BHP) to raise capacity.
Rio this week said it would invest US$518 million converting its fleet of trains in the Pilbara to driverless locomotives, which follows a deal last year to order at least 150 driverless trucks over the next four years for its iron ore mines in the region. Early this month it said US$3.4 billion would be spent extending the life of one of its mines, and on port and rail facilities at Cape Lambert on the Pilbara coast.
Walsh said the company will maintain low cost production as it expands its operations, giving Rio an advantage over some other companies also looking to tap China's growing demand. The planned announcements by some companies won't necessarily translate into additional supply capacity for the market, given the reduced availability of project finance, shortage of specialist mining skills, rising resource nationalism and other issues, he said.
Source: Market Watch
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