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India is just getting warmed up
Rio bets on rising Indian ore demand
Matt Chambers | September 08, 2008 RIO Tinto expects little fall in demand for Australia's iron ore and has been approached by Indian steel mills, eager to secure alternative supplies to meet the needs of the nation's booming economy.
The mining giant, which has long-term ambitions to triple iron ore production, also plans to make the way it sells its iron ore more consistent. It is looking at a "global blend" that would mix ultra-high-grade ore from the planned Simandou mine in Guinea with lower grades from expanded Pilbara production.
India is seen by both Rio and its predator, BHP Billiton, as having potential for commodity demand growth of the kind delivered by China this decade as it spurred a global commodities boom. Rio expects India, which currently exports about 80 million tonnes of iron ore a year to China, to eventually become an importer of both iron ore and steel some time after 2012.
Ian Bauert, the company's managing director of iron ore sales and marketing, said signs of that were already emerging. "We're getting interest from Indian steel mills who are saying they would like to try it (Rio's iron ore) for their plants," Mr Bauert said in an interview with The Australian in Perth.
Mr Bauert said Indian steel production could take off like China's and, while there were still reforms needed, many mills were already being planned near the coast, which would give them easier access to seaborne iron ore.
Iron ore growth is key in BHP's $US150 billion bid to create a global mining giant and Rio's more easily expanded Pilbara ports are a major factor when the target says BHP needs to further boost its 3.4-for-1 scrip bid.
Despite market concerns about a global slowdown and reports of growing Chinese stockpiles, Rio and BHP have remained confident there will be little reduction in longer-term demand growth for their iron ore.
Mr Bauert said there was thought to be about 68 million tonnes of iron ore, or about a month's supply, stockpiled at Chinese ports after as much as 3 million tonnes of steel production a month was stopped for the Olympics.
Production is expected to pick up again after the national holidays at the start of October.
As well as faith in China's continued demand, Mr Bauert pointed to local supply risks, with almost half the 840 million tonnes of import quality equivalent iron ore used by China each year produced domestically.
Body: Much of this is by high-cost private operations that need to heavily concentrate their grades and for which Mr Bauert said Rio saw little future.
To put the size of Chinese production in perspective, Australia, which is forecast to be the world's biggest iron ore exporter this year, is expected to deliver 328 million tonnes of iron ore in 2008, less than China as a whole.
Building on last year's successful introduction of a "Pilbara blend", which reduced its products sold from a potential 13 to five, Rio Tinto is planning a global blend for its eventual 600 million tonne a year production ambitions.
The blend would use high-grade ore from Guinea, if the Simandou project there comes to fruition, and mix it with lower Australian grades, enabling greater expansion here.
Blends allow Rio to supply a consistent product to steel mills rather than ore types that vary and would require plant reconfiguration as new mines are brought on and others run out.
"We're looking at two options, either stockpiles where blending is done close to the customer, or virtual blends," Mr Bauert said.
Virtual blends would involve steel mills receiving packages of ore from different mines that they could blend themselves.
Pilbara blend products developed for Asian steel mills contain about 62 per cent iron ore, while Simandou's resources are close to 67 per cent.
Rio Tinto is in the process of boosting its operated Australian production to a rate of 320 million tonnes a year by 2012, from around 200 million now, with further ambitions to lift that to 420 million tonnes.
BHP is looking to boost its production from a rate of about 120 million tonnes a year to 240 million tonnes in 2012 and 300 million tonnes by 2015.
If Rio Tinto can get the massive Simandou project past the Guinean government and other development hurdles, it plans to eventually produce 170 million tonnes from that region as part of a plan to move total iron annual production to 600 million tonnes.
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