October 25, 2011 / 5:48 AM / 8 years ago

UPDATE 2-Rio Tinto blames iron ore price fall on rival Vale

* Vale shipments to China to blame for soft market-Rio ore chief

* Says move is only a blip, China market fundamentals strong

* Iron ore price down 19 pct this month

By Sonali Paul

PERTH, Oct 25 (Reuters) - World No. 2 iron ore producer Rio Tinto on Tuesday blamed Vale for sharply falling spot prices of the steelmaking raw material, saying its bigger rival is diverting European shipments to China.

The move by Vale had not caused Rio to stop running its own iron ore mines at full capacity, Rio’s iron ore division head and Australian chief executive Sam Walsh said.

“My business is shipping flat out,” Walsh told a business forum in Perth on Tuesday. “We are producing at record rates.”

Spot iron ore prices have shed 19 percent so far this month in a sell-off largely fueled by slower construction steel demand in China, the world’s biggest buyer of imported iron ore at around 400 million tonnes a year.

In Europe, a more important market for Vale than Rio, steel markets have taken a knock given uncertainty surrounding the region’s debt crisis.

Growth of Europe’s steel production will slow in 2012 along with activity in the steel-using sectors, Eurofer, the European steel producers association, has forecast.

Spot iron ore prices on Tuesday fell nearly 4 percent. It was the biggest single-day drop since August 2009 as thin demand from China forced some traders to sell at a loss.

“Traders who can’t hold positions because they don’t have sufficient funding are selling at a loss of $40-$45 a tonne,” said a Singapore-based iron ore trader.

Despite price falls, all three mega-producers including Rio are ramping up production, with Walsh downplaying the lasting effect of Vale’s strategy.

“There’s a limit to what they can physically ship,” Walsh later told Reuters on the sidelines of the forum. “We’re not overly concerned about that.”

He said Rio remains confident in the long-term drivers of economic growth and iron ore demand in China.

“The issue is contagion. It’s perception, it’s fears,” he said. “When you look at the fundamentals of China, India, South Asia, North Asia, we find it’s very robust.”

BHP Billiton , the world’s third-largest iron ore producer, was equally sanguine about the outlook.

“We always produce flat out because we’re low cost producers,” BHP’s chief commercial officer, Alberto Calderon, told Reuters on the sidelines of the forum.

Economist Nouriel Roubini, dubbed Dr Doom after accurately predicting the global financial crisis, told the business forum there was a 50 percent chance of a global double dip recession within the next 12 months.

Calderon said if Roubini was correct, then iron ore and copper markets would clearly be affected, but he said if Europe manages to resolve its debt crisis, then demand and markets would improve.

BHP remained confident that its biggest customer, China, was in a strong position to withstand another global crisis and continue to grow fast, spurred by domestic demand.

“Everything we see points to the fact that China, without doing anything extraordinary, can continue to grow at around 7 to 8 percent,” Calderon told the forum.

Vale, the largest of the three top producers, reluctantly discarded the once-a-year-price system in 2010 only after BHP Billiton and Rio bowed out, cognisant it would upset customers. In the end it had no choice but to follow suit.

Now, with spot prices trailing the last quarter’s average price mark and lead times on Brazilian cargoes to China much longer than the Australian miners, Vale has announced it is open to alternative pricing systems.

Some analysts have interpreted this as paramount to Vale offering discounted iron ore to boost sales.

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