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Rio Tinto Confident about Future of Iron Ore; Forecasts Demand of 3bn Tonnes by 2030

Rio Tinto Confident about Future of Iron Ore; Forecasts Demand of 3bn Tonnes by 2030
Sep 03, 2015 By Imran Valibhoy

At an investor seminar in Sydney today, RIO Tinto reiterated its view that global steel demand is expected to grow by an average of 2.5% over the next 15 years to reach 3bn tonnes by 2030. Therefore Rio’s conclusion is that “new supply will be required.”

Rio Tinto is referring to an in-house study that predicts that Chinese crude steel production is expected to reach around one billion tonnes by 2030, hence there will be a great need for more iron ore supply to fill the void. As stated above global steel demand will grow by an everage rate of 2.4%. versus GDP growth of 3%. According to research data from Rio, emerging markets will also play an increasingly significant role, as non-Chinese demand is expected to increase by 65% by 2030.

The process of industrialisation and urbanisation in the rest of the world will be highly steel intensive with India’s share of the rest of the world to double from 10% by 2030.

Rio Tinto Iron Ore Chief Executive Andrew Harding said “As we move into our 50th year of exports from Australia, Rio Tinto is embarking on a new phase in our iron ore business.”

He said that over the past decade Rio has built the “best iron ore business in the world” and that the project is below initial cost estimates. The main priority for RIO remains to deliver maximum value for shareholders and stakeholders alike.

In terms of production Rio reduced operating iron ore costs by almost $US1 billion compared to 2012. Cash costs for a tonne of iron ore are currently at $US16.20, compared to $US20.40 for the same period last year. Taking into account currency fluctuations and lower energy costs, the all-in costs equal $15.20. As Rio is moving forward it expects to further save costs and improve efficient through around 400 initiatives.

Rio’s share price has been relatively resilient in the past 12 months which demonstrates that investors remain confident about the miner’s ability to operate a robust and sustainable business. Over the past 12 months RIO declined 20.5% which compares to an iron ore price decline of more than 50%. As per current valuations RIO’s market cap is approximately $20bn.

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Imran Valibhoy Author: Imran Valibhoy Sep 03, 2015

Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.

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