Peak Steel in China? Not Yet for Rio as 1 Billion Tons Seen

Steel production in China will expand through to 2030, according to Rio Tinto Group, which forecast the increase after Morgan Stanley predicted that output in the largest supplier will peak this year and then contract.

China’s crude-steel output will increase from 823 million metric tons last year to about 1 billion tons by 2030, Alan Smith, Rio’s Asia president for iron ore, told a conference in Beijing on Wednesday, according to a copy of his remarks. On Monday, Morgan Stanley said in a report that China’s production will drop from 806 million tons this year to 801 million tons in 2016 and 795 million tons in 2017 as the economy matures.

Rio, BHP Billiton Ltd. and Fortescue Metals Group Ltd. invested billions to expand low-cost iron ore supply in Australia, expecting that they could force higher-cost mines to close while Chinese demand continued to expand. The jump in production spurred a glut just as China’s economy slowed, triggering a bear market. Rio’s Smith told the audience the global market was in transition and that there could be significant volatility as high-cost supply was displaced.

“The demand fundamentals for iron ore remain weak as structural oversupply persists,” Australia & New Zealand Banking Group Ltd. said in a report on Thursday. The purchasing managers’ index for China’s steel sector fell to 43 in January, the lowest level in 11 months, the bank said.

Ore with 62 percent content delivered to Qingdao, China, lost 1 percent to $62.58 a dry ton on Wednesday, according to Metal Bulletin Ltd. It fell to $62.21 on Friday, the lowest price on record going back to May 2009. The raw material used to make steel retreated 47 percent last year.

Rio shares, which fell 15 percent last year, traded 0.7 percent lower at A$60.33 at 3:22 p.m. in Sydney.

“I reconfirm our view on an attractive long-term demand for iron ore, driven primarily by China,” Smith said. “Our assessment remains that China will reach around 1 billion tons of crude-steel production by 2030.”

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