10/11/2008 - 13:20

Rio cuts production, quiet on expansion

10/11/2008 - 13:20

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Rio Tinto is confident about the future demand from China for iron ore despite announcing today it will scale back production at its operations in the Pilbara region by 10 per cent.

Rio cuts production, quiet on expansion

Rio Tinto is confident about the future demand from China for iron ore despite announcing today it will scale back production at its operations in the Pilbara region by 10 per cent.

However, Rio would not directly comment on future expansion plans, including the proposed expansion of its Pilbara facilities to 320 million tonnes by the end of 2012, only saying the world's second largest iron ore producer will continue to reassess its larger projects.

Rio spokesman Gervase Green said the projects currently underway will carry on and ongoing reassessment will continue on any plans for expansion in the future.

"Projects such as the Cape Lambert and Brockman 4 projects are close to finalisation and we will be continuing with these," Mr Green told WA Business News.

"We can't put a timeline on how long the reassessment will take - it's an ongoing process.

"We are confident that robust demand in the medium term from China will remain strong.

"And this is the same in the long term, where our belief in China is very good."

Rio revised its iron ore shipments from the Pilbara to between 170 million tonnes and 175 million tonnes in 2008.

Rio Tinto chief executive Tom Albanese said the reduction was a prudent move to align production with revised customer delivery requirements in light of the fourth quarter drop in Chinese demand.

"We believe this will be a short, sharp slowdown in China, with demand rebounding over the course of 2009, as the fundamentals of Chinese economic growth remain sound," Mr Albanese said in a statement.

The move from Rio mirrors a decision last month by the world's largest iron ore producer, Brazil's Vale, to reduce output by 30 million tonnes a year in response to softening demand.

Steel companies around the world have initiated a significant cut to production amid the global financial crisis leading to a weakening demand for iron ore.

Mount Gibson Iron has been forced to sell its iron ore at a significant discount and will cut a third of its workforce after some of its customers defaulted on binding offtake agreements last month.

BHP Billiton, the world's third largest iron ore producer, said there were no plans to reduce output.

"We have no plans to cut production at this stage," BHP Billiton spokesman Peter Ogden told WA Business News.

This financial year, the company expects its Pilbara operations to produce about 137 million tonnes of iron ore, up from 122 million tonnes the previous year.

Meanwhile, Fortescue Metals Group, Australia's third largest iron ore producer, has brought forward a planned shutdown to its port and mine processing facilities in the Pilbara.

Rio Tinto shares had gained 6.2 per cent to $76.75 by 1530 AEDT, BHP Billiton put on $1.81, or 6.48 per cent to $29.74, Fortescue Metals dropped seven cents, or 2.69 percent to $2.53, while Mt Gibson added two cents, or 5.26 per cent, to 40 cents.

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