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Rio to Cut Iron Ore Output 10% as China Demand Slows (Update4)
11.19.2008 | -- 1

Nov. 10 (Bloomberg) -- Rio Tinto Group, the world's second- largest iron ore exporter, will cut output at its mines in Western Australia by 10 percent because of reduced demand from steelmakers in China, following the lead of bigger rival Cia. Vale do Rio Doce.

This reduction is a prudent move to align production with revised customer delivery requirements in the light of the fourth- quarter drop in Chinese demand,'' Tom Albanese, chief executive officer of the London-based company, said today in a statement.

Albanese said the slowdown will be short, forecasting demand to rebound next year in China, which yesterday pledged a 4 trillion yuan ($586 billion) stimulus plan to prop up growth as the world heads toward recession. Slowing global economies have slashed steel demand, damped prices and slowed exports.

Rio is facing reality'' and its earnings will be reduced significantly this year, Peter Arden, an analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co., said from Melbourne. He expects contract ore prices may drop 10 percent next year and fall again in 2010. This is about as bad as it gets.''

Rio Tinto's shares rose 7.9 percent to A$78.00 at the 4:10 p.m. Sydney time close on the Australian stock exchange. BHP's shares rose 7 percent, compared with a 1.4 percent gain in the benchmark index.

China Plan

Steel production in China, the biggest maker of the metal, will rise at least 5 percent next year because of the stimulus package, Daiwa Securities Group Inc. said today. The funds will go toward low-rent housing, rural infrastructure as well as roads, railways and airports.

Spot iron ore prices rose for the first time in six months on Nov. 7, with prices at Qingdao, China's biggest iron ore port, advancing 3.7 percent to 560 yuan ($82) a metric ton.

Fortescue Metals Group Ltd., Australia's third-largest iron ore exporter, said today it's bringing forward a planned shutdown of its port and mine processing plant, reducing production this year by about 10 percent. More normal conditions are expected next year and beyond, the Perth-based company said.

The world's largest producers of aluminum, iron ore and steel are cutting output and reviewing investment plans. Brazil's Vale began iron ore output cuts last month and doesn't expect a market recovery until next year. BHP Billiton Ltd., the third-biggest exporter of the ore,, may have to output, Ord Minnett's Arden said.

We have no plans to cut production,'' BHP spokesman Peter Ogden said by phone from Melbourne today.

Shipments Drop

Shipments from Rio's mines will be reduced to be between 170 million metric tons and 175 million tons in 12 months ending Dec. 31, the company said, without giving the original figure.

The company produced 145 million tons of ore from its Pilbara mines in Western Australia last year. It had forecast 2008 output of between 190 million and 195 million tons in October. Rio produced 139.2 million tons in the first nine months of the year.

Iron ore exports from Australia and Brazil may decline by as much as 25 percent from levels a few months ago'', Macquarie Group Ltd. said in a report today. There may be a major collapse'' in Chinese iron ore imports in November and December, based on shipping schedules, the report said.

Rio and BHP may be forced to cut prices by 15 percent next year, ending six years of gains, according to the median estimate of 11 analysts surveyed last week by Bloomberg News. BHP, the world's biggest mining company, is seeking to buy Rio in a hostile $74 billion all-stock takeover offer.

ArcelorMittal, the world's biggest steelmaker, last week said it will reduce production by as much as 35 percent in the U.S. and 30 percent in Europe after prices tumbled. The Luxembourg-based company forecast earnings will slide as much as 48 percent to $2.5 billion in the fourth quarter.

The extent of the global cuts is truly shocking and reflects a collapse in auto sales and construction activity,'' Macquarie said today.

To contact the reporter on this story: Rebecca Keenan in Melbourne at

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