Rio Tinto's Walsh Sees 13% Drop in Iron Ore Prices as Chinese Demand Falls

Rio Tinto Group, the world’s second- biggest iron ore supplier, said contract prices for the steelmaking commodity will probably fall 13 percent, the first decline in three quarters as Chinese demand weakens.

Prices will fall to around $127 a metric ton for the three months starting Oct. 1, from the previous quarter, Sam Walsh, the head of the London-based company’s iron ore business, said today. Rates almost doubled in the April quarter, and gained more than 20 percent in the June-to-September period.

“We are going to see ups and downs along the way and some of that clearly relates to economic circumstances and some relates to supply coming on,” Walsh told reporters at Rio’s Brockman mine in the Pilbara region of Western Australia.

Rio, BHP Billiton Ltd. and Brazil’s Vale SA, accounting for three-quarters of iron ore trade, ended a 40-year tradition of annual benchmark prices in favor of quarterly agreements pegged to spot sales. Steel prices in China are under pressure to fall because of weaker demand, Baoshan Iron & Steel Co., the nation’s biggest publicly traded steelmaker, said this week.

Rio rose 1.5 percent to A$73.29 on the Australian stock exchange at 3:18 p.m. Sydney time.

The company today opened its $1.5 billion Brockman 4 mine. The mine will reach an annual production rate of 22 million metric tons in the second half of 2011, Michael Gollschewski, Brockman’s general manager, said today.

Expansion Plans

An expansion to 40 million tons will be considered by the board for investment approval in November and could start production by 2013, Gollschewski said. The company is boosting overall iron ore output to 330 million tons from 220 million tons from its 12 mines in the Pilbara.

Rio is still seeking approval from countries including China for its plan to combine its Australian iron ore operations with BHP, the world’s third-biggest exporter, Walsh said.

“We have been responding to a large array of questions” from regulators around the world, Walsh said. “This is not something we will give up on at the first challenge.”

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

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