(Minews) - Australia's biggest iron ore exporter expects demand for steel in China to be dampened for several years, in comments that are bearish for iron ore prices in the short term.
Rio Tinto's iron ore boss, Andrew Harding, said a short-term oversupply of housing in China would keep a lid on demand for steel in the immediate future.
"In 2015 to date, China's steel production has been much the same as last year. There is inventory in the housing sector that has to be run down, and that will lead to a few years of reduced consumption of new steel," Mr Harding said in a magazine published by Rio Tinto.
"The Chinese economy is in transition to what is being called the 'new normal', driven more by domestic consumption than by infrastructure growth."
The Chinese housing market has been weak for more than a year now, crimping domestic demand for steel.
The trend led to a 1.7 per cent slide in Chinese crude steel production during the March quarter; the first quarterly decline in Chinese steel production since records began in 1994.
Those results have given credence to claims by the China Iron and Steel Association that Chinese steel production has peaked at the 823 million tonnes produced in 2014, and will not reach 1 billion tonnes per year, as predicted by Rio and BHP Billiton.
The slump in domestic demand has prompted Chinese steel mills to ramp up exports in a bid to maintain sales.
Long-term prospects positive
But Mr Harding said Rio would not be deterred by that short-term outlook, and was focused on the more encouraging long-term demand outlook for steel and iron ore.
"In China, more than 300 million people are still expected to move into a more urbanised environment," he said. "There are billions of other people living in India and parts of Africa, South America and the ASEAN region, places that have both the stability and the opportunity to grow.
"A year or two where there are short-term effects running shouldn't sway us from the long-term outlook. The long-term drivers are fundamentally sound and will keep driving consumption forward. You don't have to have growth every year for the long-term forecast to play out."
Benchmark iron ore prices have been below $US100 per tonne for 14 months and below $US70 per tonne for five months.
The commodity was fetching $US61.51 per tonne on Thursday, and RBC expects the price to average $US55 per tonne in 2015 and $US56 per tonne in 2016.
The bank expects iron ore prices to return to $US65 per tonne by 2019.
Rio has been mining iron ore in Western Australia for more than 50 years, and Mr Harding said that experience had prepared the company for the low prices of today.
"Since we've been in business, the average price has been around US$50 per tonne, so there shouldn't be any surprise that we're at this level now," he said.
Some smaller iron ore miners in WA and China have recently been given tax relief by their respective governments in a bid to help them survive the current downturn in prices.
Mr Harding predicted such measures, which are being enjoyed by the likes of Atlas Iron and BC Iron, will have little impact.
"We always expect there will be attempts by governments to provide relief to domestic producers, in the form of tax breaks, for instance. But the impact of that is only likely to be very minor in the scheme of things and, in my estimation, will make no difference to the outcome," he said.
