(Minews) - Global miner Rio Tinto expects some 85 million tonnes of iron ore capacity to be taken out of the world market in 2015 because a price slump has made it too costly to produce, on top of an estimated 125 million tonnes last year.
Chinese mines - among the least efficient globally - will absorb most of the losses, according to Rio Tinto iron ore chief Andrew Harding. However, some of that will be offset by the likely start-up this year of the Roy Hill mine in Australia.
"We estimate that around 85 million tonnes of existing production will exit the market in 2015," Harding said on the sidelines of a conference in Perth on Tuesday. "This will come from China as well as seaborne suppliers."
The resistance of higher-cost Chinese miners to bowing out has been largely blamed by Rio Tinto and rivals BHP Billiton and Vale for the collapse in iron ore prices.
Analysts say the big miners have actively ramped up output to squeeze the smaller, higher-cost producers.
They say the amount of tonnage still to leave the market could rise by a further 50 million to 80 million tonnes as steel mills eschew lower-quality ore mined in such places as Iran, Malaysia and Mexico.
However, they warned that lost tonnage would be offset by new supply from the soon-to-be-completed Roy Hill mine in Australia.
The chief executive of Roy Hill, Barry Fitzgerald, is expected to tell the conference on Wednesday that the first shipments will come in September and eventually reach 55 million tonnes per year.
The forecast by Harding came as iron ore prices plumbed record lows due to a mounting supply glut that is colliding with weakening demand from Chinese steel mills.
Iron ore .IO62-CNI=SI slipped to $58 a tonne this week, the lowest since free-floating prices replaced an annual fixing system in 2009.
Citi forecast on Tuesday that the price would drop to around $50 a tonne in the short term as demand from Chinese steel mills waned. It forecast an average $58 over the year.
BHP iron ore head Jimmy Wilson estimated that about 250 million tonnes of Chinese iron ore was being produced annually out of total capacity to mine 420 million.
China's domestic industry is fragmented, with miners in coastal areas suffering under some of the highest production costs in the country, well above the price of imported ore from Australia and Brazil.
Ore from China's estimated 6,000 mines on average contains less than 30 percent iron, compared with Australian and Brazilian ores that typically have close to double that amount.
Many of the Chinese closures have occurred in Hebei Province, which accounted for 37 percent of Chinese output in 2014, according to Laura Brooks, an analyst with commodities consultants CRU.
