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Rio to Cut Iron Ore Output 10% as China Demand Slows

Rio to Cut Iron Ore Output 10% as China Demand Slows 

Rio Tinto Group, the world's second- largest iron ore exporter, will cut output at its mines in Western Australia by 10 percent because of reduced demand from steelmakers in China (cnmining), following the lead of bigger rival Cia. Vale do Rio Doce.

``This reduction is a prudent move to align production with revised customer delivery requirements in the light of the fourth- quarter drop in Chinese demand,'' Tom Albanese, chief executive officer of the London-based company, said today in a statement.

Slowing economies have slashed steel demand, damped prices and in October made mills unprofitable in China, the biggest maker of the metal. BHP Billiton Ltd., the third-biggest exporter of the ore, so far has declined to cut its production or curb expansion.

``Rio is facing reality and I think BHP will inevitably have to say something,'' Peter Arden, an analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co., said from Melbourne. Rio's cuts will reduce earnings ``quite significantly'', he said.

Rio Tinto's shares rose 8.5 percent to A$78.16 at 12:01 p.m. Sydney time. BHP's shares rose 7.4 percent.

China yesterday pledged a 4 trillion yuan ($586 billion) stimulus plan to prop up growth as the world heads towards recession. The funds will go toward low-rent housing, rural infrastructure as well as roads, railways and airports.

``This will be a short, sharp slowdown in China, with demand rebounding over the course of 2009, as the fundamentals of economic growth remain sound,'' Albanese said in the statement.

Fortescue ShutdownFortescue Metals Group Ltd., Australia's third-largest iron ore exporter, said today it's bringing forward a planned shutdown of its port and mine processing plant, reducing production this year by about 10 percent. More normal conditions are expected for next year and beyond, the Perth-based company said.

The world's largest producers of aluminum, iron ore and steel are cutting output and reviewing investment plans. Brazil's Vale began iron ore output cuts last month and doesn't expect a market recovery until next year.
``We have no plans to cut production,'' BHP spokesman Peter Ogden said by phone from Melbourne today.

Shipments from Rio's mines will also be reduced to be between 170 million metric tons and 175 million tons in 12 months ending Dec. 31, the company said, without giving the original figure.

The company produced 145 million tons of ore from its Pilbara mines in Western Australia last year. It had forecast 2008 output of between 190 million and 195 million tons in October. Rio produced 139.2 million tons in the first 9 months of the year.

Cut PricesRio and BHP may be forced to cut prices by 15 percent next year, ending six years of gains, according to the median estimate of 11 analysts surveyed last week by Bloomberg News. BHP, the world's third-biggest iron ore exporter, is seeking to buy Rio in a hostile $73 billion all-stock takeover offer.

``This is about as bad as it gets,'' said Ord Minnett's Arden. He expects contract prices may fall by 10 percent next year and may decline again the following year.

ArcelorMittal, the world's biggest steelmaker, last week said it will reduce production by as much as 35 percent in the U.S. and 30 percent in Europe after prices tumbled. The Luxembourg-based company forecast earnings will slide as much as 48 percent to $2.5 billion in the fourth quarter.

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