Rio Seeks Go Ahead for Expansion to Meet China Demand (Update2)
By Tan Hwee Ann
Nov. 10 (Bloomberg) -- Rio Tinto Group, the world's second- largest iron ore exporter, will seek board approval as early as this year for an Australian port expansion, adding to its $4 billion program to boost iron ore production and exports.
The Cape Lambert expansion in Western Australia will increase port capacity by 13 percent to 220 million tons from 195 million, said Sam Walsh, head of the company's iron ore business unit. Rio estimated the cost last year as similar to a $690 million expansion at another port.
Rio Tinto, BHP Billiton Ltd. and Cia. Vale do Rio Doce, who account for three-quarters of global iron ore exports, are spending billions on mines and ports to supply rising demand from China, the world's largest consumer of the steelmaking ingredient. Benchmark annual iron ore prices have jumped for four straight years and may rise again next year, Walsh said.
``Rio flagging the expansion shows they want to keep pace with Vale and potentially keep junior competitors in Australia at bay,'' said Tony Robson, an analyst at Global Mining Research, in Sydney. ``All the information by the three majors show continued Chinese imports of iron ore and they're expanding to fill the gap.''
Shares of the London-based company, which have risen 18 percent this year in Australia, fell as much as 58 cents, or 0.7 percent to A$80.80 and traded at A$80.82 at 10:50 a.m. Sydney time. Brazil's Vale is the world's largest exporter of iron ore, and Melbourne-based BHP is the third largest.
`Final Review'
China's iron ore imports surged 32 percent to 275 million tons last year. The nation accounts for 53 percent of iron ore sales for BHP for the year ended June 30, and 47 percent of Rio Tinto's sales for calendar 2005.
``We have a project that's under final review, I'm hopeful we can take that project to the board for approval late this year, or early next year,'' Walsh said yesterday in a phone interview from Western Australia state. ``From where we sit, iron ore demand continues to be very robust, and we have very strong demand for our products.''
Cape Lambert has an export capacity of 55 million tons a year, and has been exceeded on an annualized rate, said Walsh. The plan will increase its capacity to 80 million tons. Rio is also expanding its Dampier port capacity to handle 140 million tons of exports a year, from 116 million tons.
Walsh had declined to provide an expected budget for the Cape Lambert project yesterday.
Exploration Work
Iron ore prices rose 19 percent this year, and 71.5 percent a year ago as miners struggle to meet rising demand from China, the world's largest steelmaker. Chinese steelmakers, including Baosteel Group Corp., will meet iron ore producers to start talks on 2007 annual prices this month.
Rio is spending $200 million looking for new ore reserves, and its team has ``delivered with the exploration work,'' and is now doing more drilling to define the ore, Walsh said. Rio would be ``progressively reporting'' the finds later, he said.
Supplies will likely continue to lag behind demand growth next year, said Walsh. Rio's production next year will likely increase ``a little bit,'' while rival BHP Billiton has said its production will be little changed as expansion works hinders exports, he said. New projects by other companies won't be ready by next year, he said.
Brazil's Vale expects Chinese steel output to rise 13 percent next year. Demand for iron ore from China will climb by 50 million tons in 2007 as a result of higher steel output, Chief Financial Officer Fabio Barbosa yesterday told reporters in Rio de Janeiro.
Iron ore prices may climb 10 percent next year on stronger than expected demand for the raw material from Chinese steelmakers, Credit Suisse Group said last month. The China Iron and Steel Association forecasts steel output to rise 13 percent a year between 2006 and 2010, the brokerage said.
To contact the reporters on this story: Tan Hwee Ann in Melbourne at [email protected]
Last Updated: November 9, 2006 18:53 EST
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