More than 160 million metric tons of iron ore will exit the market this year as the price slump forces high-cost miners to idle capacity, according to the chief executive officer of the world’s second-biggest producer.
“This year we have a forecast that 85 million tons will leave the market and a further 80 million tons are at risk,” Rio Tinto Group CEO Sam Walsh told reporters today in Perth. “At risk means that they are high cost and unless they achieve extraordinary things they are at risk and will exit the market.”
The price of iron ore, used to make steel, has tumbled 44 percent in the past year and touched a decade-long low of $47.08 a metric ton on April 2 amid a supply expansion and uncertain demand in China, the biggest buyer. The slump has already forced smaller producers such as Atlas Iron Ltd., African Minerals Ltd. and London Mining Plc, to shutter mines.
Global supply has dropped by 22 million tons in the first quarter, Walsh said, with Rio keeping a planned $1 billion investment its Silvergrass mine on hold.
“We have no desire to flood the market with iron ore,” Chairman Jan du Plessis said today. “We have no desire to push competitors out of business.”
Global iron ore supply was 2.138 billion tons last year and may be 2.122 billion tons this year, according to a UBS Group AG report dated May 4.
A bout of restocking by Chinese steel mills and a move to temper the pace of expansion by BHP Billiton Ltd. pushed prices into a bull market last month, with benchmark prices in China reaching $60.89 a ton yesterday. Prices are likely to peak mid-year, Morgan Stanley analysts including Tom Price and Joel Crane wrote in a report on April 28.
Rio plans to increase capacity from Western Australia’s Pilbara region to a potential 360 million tons a year. Iron ore accounted for 79 percent of Rio’s net income last year.
Vale SA, the world’s largest iron-ore producer, will consider cutting as much 30 million tons of output from its most expensive mines, it said April 30. However, the supplier will continue to pursue its long-term target to grow production to 450 million tons a year.