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Monday 10 November 2008
Rio Tinto cuts iron ore shipments
Facing a dramatic drop off in Chinese steel production, Rio Tinto will cut iron ore shipments by up to 20 million ton, or 10 percent, in 2008, but holds out hope that demand in China will improve next year.
SYDNEY: Facing a dramatic drop off in Chinese steel production, Rio Tinto will cut iron ore shipments by up to 20 million ton, or 10 percent, in 2008, but holds out hope that demand in China will improve next year.
A $586 billion economic stimulus package announced by China on Sunday to fund major infrastructure works could reignite steel demand by the first quarter, though analysts could not say by how much.
“A lot of that funding is going to go to new construction and that will require a lot more steel, but how that translates into iron ore sales next year is yet to be seen,” said James Wilson, a DJ Carmichael & Co analyst.
Xinhua, the official Chinese news agency, said the Beijing had approved 4 trillion yuan in new government spending between now and 2010, focused largely on infrastructure and social projects.
Citing the hobbled Chinese steel sector, Rio said it was trimming its 190 million-ton production to between 170 million and 175 million ton, joining its bigger rival Vale, which announced last month a cut of 30 million tons.
“Operations continue to perform well but demand has continued to decelerate,” Rio’s chief executive, Tom Albanese, said in a statement.
Rio’s move leaves only BHP Billiton operating at full speed.
“We have no plans to cut production and our strong balance sheet enables us to reinvest throughout the cycle,” said a BHP spokesman, Peter Ogden.
Vale, Rio and BHP together control about three quarters of the global iron ore supply.
Albanese said Rio’s cuts were prudent and necessary to align production runs with new requirements for less ore in China in the fourth quarter.
“We believe this will be a short sharp slowdown in China, with demand rebounding over the course of 2009 as the fundamentals of Chinese economic growth remain sound,” Albanese said.
Steel prices have collapsed in recent months along with demand as the global financial crisis strangled growth prospects and developed economies faced what some say could be their first full-year recession since World War II.
Rio stock was up 7.7 percent to 77.80 Australian dollars in Sydney. BHP, which is targeting Rio in an all-share, unsolicited takeover offer worth about $70 billion, climbed 7 percent to 9.93 dollars.
China is expected to produce about 500 million tons of steel this year, up 10 million tons from last year and short of earlier forecasts of 520 million to 550 million tonnes, according to recent statements by the China Iron and Steel Association.
Chinese hot-rolled steel coil prices are down nearly 30 percent from a month ago to around $595 a ton, while steel billets also have dropped sharply, according to steel traders.
Ken West, a partner at fund manager Perennial Growth, said it was only a matter of time before BHP would be forced to cut production.
“Clearly, if the demand across the steel industry landscape is as we see it, you’d imagine BHP can’t stay unaffected,” West said.
BHP’s chief executive, Marius Kloppers, has cited similarities in Rio’s and BHP’s iron ore businesses as a good reason for the two companies to merge, predicting billions of dollars in cross savings as a result. But Rio’s board has rejected BHP’s offer of 3.4 of its shares for every Rio share as too low, forcing BHP to go hostile.
1 comment:
Rio Tinto cuts iron ore shipments
Reuters
10 November 2008
SYDNEY: Facing a dramatic drop off in Chinese steel production, Rio Tinto will cut iron ore shipments by up to 20 million ton, or 10 percent, in 2008, but holds out hope that demand in China will improve next year.
A $586 billion economic stimulus package announced by China on Sunday to fund major infrastructure works could reignite steel demand by the first quarter, though analysts could not say by how much.
“A lot of that funding is going to go to new construction and that will require a lot more steel, but how that translates into iron ore sales next year is yet to be seen,” said James Wilson, a DJ Carmichael & Co analyst.
Xinhua, the official Chinese news agency, said the Beijing had approved 4 trillion yuan in new government spending between now and 2010, focused largely on infrastructure and social projects.
Citing the hobbled Chinese steel sector, Rio said it was trimming its 190 million-ton production to between 170 million and 175 million ton, joining its bigger rival Vale, which announced last month a cut of 30 million tons.
“Operations continue to perform well but demand has continued to decelerate,” Rio’s chief executive, Tom Albanese, said in a statement.
Rio’s move leaves only BHP Billiton operating at full speed.
“We have no plans to cut production and our strong balance sheet enables us to reinvest throughout the cycle,” said a BHP spokesman, Peter Ogden.
Vale, Rio and BHP together control about three quarters of the global iron ore supply.
Albanese said Rio’s cuts were prudent and necessary to align production runs with new requirements for less ore in China in the fourth quarter.
“We believe this will be a short sharp slowdown in China, with demand rebounding over the course of 2009 as the fundamentals of Chinese economic growth remain sound,” Albanese said.
Steel prices have collapsed in recent months along with demand as the global financial crisis strangled growth prospects and developed economies faced what some say could be their first full-year recession since World War II.
Rio stock was up 7.7 percent to 77.80 Australian dollars in Sydney. BHP, which is targeting Rio in an all-share, unsolicited takeover offer worth about $70 billion, climbed 7 percent to 9.93 dollars.
China is expected to produce about 500 million tons of steel this year, up 10 million tons from last year and short of earlier forecasts of 520 million to 550 million tonnes, according to recent statements by the China Iron and Steel Association.
Chinese hot-rolled steel coil prices are down nearly 30 percent from a month ago to around $595 a ton, while steel billets also have dropped sharply, according to steel traders.
Ken West, a partner at fund manager Perennial Growth, said it was only a matter of time before BHP would be forced to cut production.
“Clearly, if the demand across the steel industry landscape is as we see it, you’d imagine BHP can’t stay unaffected,” West said.
BHP’s chief executive, Marius Kloppers, has cited similarities in Rio’s and BHP’s iron ore businesses as a good reason for the two companies to merge, predicting billions of dollars in cross savings as a result. But Rio’s board has rejected BHP’s offer of 3.4 of its shares for every Rio share as too low, forcing BHP to go hostile.
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