Rio Tinto to boost iron ore capacity

The new CEO of mining giant Rio Tinto Group, Sam Walsh, said the company will continue to expand its iron ore capacity in Western Australia to meet growing demand from China, its most important market.

Coal loading operations proceed at Coal and Allied's Mount Thorley Warkworth mine in the Hunter Valley about 140 kms (87 miles) north of Sydney in this October 18, 2010 file handout photo. [Photo/Agencies]

In his fourth visit to China this year, Walsh said that China's urbanization and industrialization drive will continue to support iron ore demand.

Also, India, South Africa and Southeast Asia will go through similar urbanization processes - not necessarily at the same pace as China - which will bring strong demand, Walsh said.

Under a State Council measure, the country will cut its steel production capacity by 80 million metric tons in five years, to improve the environment and curb overcapacity in the industry.

According to data from the China Iron and Steel Association, the country had 976 million tons of steel capacity at the end of 2012, while its steel demand will be only 680 million tons to 712 million tons by 2015.

Xu Kuangdi, president of the Chinese Society for Metals, estimated that the country's steel capacity will reach about 1.02 billion tons by the end of this year.

Industry insiders said that the capacity reduction will likely hit demand for iron ore.

Walsh said he is impressed by what has been done in China to improve air quality and raise energy efficiency, but those measures will not change Rio Tinto's plans to expand iron ore capacity since there's growing demand from Chinese steel mills for high-quality iron ore because of the policy.

The company said in May that it will boost its iron ore production by 15 percent to 360 million tons by 2015.

"I have to create a culture in the company to sense and respond to the changes in the world fast," he said.

Meanwhile, Walsh said that copper, uranium and industrial minerals have good potential, in addition to iron ore, but the aluminum sector will likely face a tough period.