Rio Tinto remains confident in the long-term outlook for its biggest commodity, arguing that growth in emerging markets, particularly India, will offset some of the pressure from softening Chinese demand.
As the miner leans further into copper and debate continues over China’s iron ore demand, Rio Tinto is banking on two major developments — Rhodes Ridge in Western Australia and Simandou in Guinea — to underpin its iron ore business as the global market evolves.
Speaking at the Melbourne Mining Club at Melbourne Town Hall, Rio Tinto iron ore chief Matthew Holcz said despite ongoing demand about China’s maturing steel industry and rising scrap steel usage, the demise of iron ore is “very much being exaggerated”.
While China is approaching peak steelmaking capacity, Holcz said Rio Tinto expects Chinese iron ore consumption to remain relatively stable through to 2030, with some decline after that.
Meanwhile, the firm is betting that growth in emerging markets is expected to offset some of that pressure.
“India is growing at around 5 per cent a year,” Holcz said. “We expect their consumption to double from now to 2040, and expect them to be a net importer by 2035.”
Commenting on its iron ore developments, Holcz said Rhodes Ridge represented a major opportunity for the company, describing it as the “best undeveloped deposit in the Pilbara”.
The project has entered the pre-feasibility stage, with Rio Tinto investing around $US190 million ($269 million) in studies expected to run until 2029, when the company plans to make an investment decision. First ore is targeted for 2030, with Rhodes Ridge expected to provide the capacity to lift Rio Tinto’s Pilbara production towards 360 million tonnes a year.
The project will also help address one of the industry’s biggest challenges: declining ore grades.
“We’ve seen in the market a lot of the major producers’ grades have been declining year on year,” Holcz said.
“With Rhodes Ridge in the Pilbara, and also we believe we’ve got the best undeveloped deposit outside of Australia in Simandou, the grades there are even higher.”
Rio Tinto’s Simandou project in Guinea is expected to produce about 60 million tonnes a year from the company’s share of the development once operating at full capacity. Holcz said the project represented another major opportunity for the company’s future iron ore portfolio.
Holcz added that the supply side of the market was becoming increasingly challenging, with disruption risks, resource depletion and declining grades creating a need for new projects.
“When we look at the next decade, we believe industry will still need 800 million tonnes,” he said. “The difference is not much of that is due to increasing demand. Most of it is due to depletion.”
He said many major iron ore operations developed during the industry boom between 2005 and 2015 were now reaching a stage where replacement supply was required.
“If we look at when the industry really boomed, 2005, 2010, 2015, a lot of those assets are now 15, 20 years old,” Holcz said, with Rhodes Ridge and Simandou outlined as key enablers to support changing demands and already-established asset depletion.
“Grades are declining, so you need more iron ore units just to stand still in terms of iron content,” Holcz said. “[Rhodes Ridge] is also an opportunity for us to increase our grades.”
The comments also came as London-listed Glencore — which was in merger talks with Rio Tinto until February — announced plans to apply for a secondary listing on the ASX.
As a large copper and coal producer without an iron ore business, Glencore is pitching itself as a strong copper growth story for the local market.
Read the full Australian Resources & Investment analysis for further insights into what Rio Tinto’s iron ore outlook suggests about the future of the commodity over the next decade.