Rio predicts slower demand for steel to drive down prices

Rio Tinto expects new production and slower growth in steel demand to weigh on prices of the raw material during the second half.

Rio Tinto expects new production and slower growth in steel demand to weigh on prices of the raw material during the second half.

"We're going to see downward pressure on iron ore prices in the second half and perhaps beyond," Greg Lilleyman, Rio's president of Pilbara operations in Western Australia, said at a conference in Perth. "We're going to see a number of projects bring supply on in the second half of this year around the globe - in particular, in the Pilbara."

Steel demand growth in China, the biggest importer of iron ore, has slowed from an annual growth rate of 20 per cent in 2010 to 2.1 per cent last year, Citigroup said.

The nation's new leadership is focusing on building a consumer-led economy as a construction boom wanes.

Shares in Rio, which will increase production in the Pilbara region to 360 million tonnes by the first half of 2015 from 290 million tonnes this year, fell 1.5 per cent to $58.66 at the close of trading. BHP was down 0.4 per cent.

The world's second-biggest exporter of iron ore is pursuing an "unrelenting" focus on improving shareholder value, Rio's new chief executive, Sam Walsh, said last month, after write-downs and a fall in revenue due to lower commodity prices.

Rio will seek to sell assets and cut costs after commodity prices fell. It plans to reduce capital expenditure to $13 billion this year from $17 billion last year, while targeting cost savings of more than $5 billion by the end of next year.

"In terms of new projects, if prices are lower moving forward than the period we've just come from, they're not going to be easy," Mr Lilleyman said. "The long-run story, notwithstanding the volatility we've seen, is still for relatively strong iron ore prices and demand over a long period of time."

Mark Lyons, Citigroup's head of iron ore and steel trading, said iron ore prices could average $US120 ($117) a tonne.

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