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Rio Tinto sees up to 165 mil mt iron ore capacity exiting market in 2015

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    Rio Tinto sees up to 165 mil mt iron ore capacity exiting market in 2015

    Melbourne (Platts)--12Feb2015/646 am EST/1146 GMT

    Rio Tinto's chief executive Sam Walsh said Thursday that up to 165 million mt of higher-cost iron ore supply could potentially exit the market in 2015, most of it from international rather than Chinese producers.

    Walsh said the Anglo-Australian miner estimated that 125 million mt of supply was flushed out of the market in 2014 due to low iron ore prices, 85 million mt of it from higher-cost Chinese iron ore miners.

    "We estimate that 80 million mt of iron ore will come out this year; beyond that 80 million mt/year there is another 85 million mt at risk," Walsh said during a conference call to discuss the company's 2014 financial results.

    "We're not saying the 85 million mt will definitely come off, but they are higher-cost producers and they will have to drastically reduce their costs," he added.

    Walsh said the company was not expecting a "huge amount" of additional Chinese iron ore production to be removed this year.

    Rather, it would be international producers, many of whom were already "hanging on by their fingernails," that would be forced to halt production due to low iron ore prices, he said.

    "Some of the cost-cutting actions people are taking are fairly drastic and whether it's sustainable or not is doubtful," he said.

    In contrast, he said Rio Tinto would continue to lower its iron ore production costs as it lifted output further in 2015.

    The miner is expected to complete the infrastructure required to lift production to around 360 million mt/year in Western Australia by mid-2015 from close to 300 million mt/year currently.

    Taking into account lower oil prices, Walsh said the miner's unit cash cost for iron ore produced in the October-December quarter was around $17/mt.

    Rio Tinto reported total underlying earnings of $9.3 billion in 2014 -- the company operates a calendar fiscal year -- down 9% on $10.2 billion a year earlier.

    A 50% fall in iron ore prices over 2014 saw the company's underlying earnings for iron ore fall 18% to $8.1 billion.

    Rio Tinto sold 288.3 million mt of iron ore from Western Australia in 2014, it said last month in its December quarter report.

    Walsh said several times that 2015 would be a "tough year" with China entering a "new period of economic development" that would result in lower price levels.

    However, as the lowest-cost iron ore producer, he said Rio Tinto was well-placed to "thrive during the good times and at times when the market is tight."
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