Slowdown in steel production ahead for Rio?

Rio Tinto, the world’s biggest iron ore producer, faces a sharp slowdown in Chinese steel production amid increasing iron ore seaborne trade in the second half of this year, says Morgan Stanley’s Rio analyst Brendan Fitzpatrick.

Geoff Raby, the former Australian ambassador to China and current board member of iron ore miner Fortescue, disagrees.

He says yesterday’s Tianjin iron ore spot price of $US129 a tonne, up 13% since June 26, is a fair indication of rising iron ore demand due to economic growth (see our video The iron ore crunch).

At 1503 Rio shares were up 77.5 cents, or 1.4%, to $56.295. The stock has fallen 15% this year. Fortescue shares gained 16.5 cents, or 4.7%, to $3.665. The stock has dropped 21% this year.

Raby reckons China’s economic growth is about 7.5% – in line with the official economic data. Steel production, instead of slowing is being “cleared out of the steel yards”. Chinese steel producers aren’t having any trouble selling their steel, he says.

Australian iron ore volumes are set to increase as Rio and Fortescue mine more of the commodity after mine developments in Western Australia’s Pilbara region.

But even if volumes increase, prices will not come down too dramatically, Raby argues.  

Raby made his remarks at conference in Sydney today.