Rio Tinto (RIO) Forecasts China’s Steel Demand to Hit 1B Tonnes in 2013

Rio Tinto (ASX: RIO) expects to benefit from the rising demand for steel by China with higher iron ore sales, a company executive said at an international conference in Singapore on Wednesday.

With the demand for steel in China expected to grow yearly at a compounded rate of 3 per cent, demand will hit 1 billion tonnes in 2030. Rio Tinto Iron Ore Asia President Alan Smith also forecast the firm will exceed in 2013 its current 2012 record of 147 million tonnes sales of iron ore to the Asian giant.

He shared his optimistic outlook amid analysts' expectation of a global economic slowdown that would affect China and cause commodity prices used as raw materials in industry such as iron ore to contract.

Even with the possibility of such a grim scenario, he said Rio Tinto is well positioned on the cost curve to supply iron ore to China amid volatile prices.

For the third quarter of 2013, Mr Smith predicted that Rio's yearly iron-ore production capacity would grow to 290 million tonnes from the current 237 million tonnes. If the growth would not happen, the miner still has a reserve base of almost 2.9 billion tonnes in the past seven years, Mr Smith said.

The boost in production and export forecast would come despite planned cuts in costs by over $5 billion until the end of 2014. To achieve that goal, Rio laid off hundreds of workers and identified copper, coal and aluminium assets for sale or closure.

While China's iron-ore imports is going up despite the drop in prices of the key steel-making ingredient, the country's copper imports plummeted to its lowest level in almost two years due to weaker domestic demand for metals.

The lower demand is part of Beijing's move to cool China's property market which also led to an oversupply of commodities in domestic markets. China's General Administration of Customs reported on Wednesday a 21.2 per cent decline in copper, copper alloy and semi-finished product imports in April from a year ago to 296,000 metric tonnes.

The cooling off China's property market was done through restrictions on home loans to limit the risk of a real estate bubble and maintain affordable prices for homes.

However, BHP Billiton (BHP) is not optimistic as Rio when it comes to the outlook for iron ore. Alan Chirfwin, general manager of BHP's iron ore marketing, said at the same conference that global iron ore supplies would grow at a faster rate than demand over the long term, lead to lower prices and reduced volatility of supply.

"As the new supply gradually displaces high-cost production, it will therefore translate into lower prices ... Significant low-cost supply, mainly from Australia and Brazil, will eventually meet and exceed incremental Chinese demand," Bloomberg quoted Mr Chirgwin.