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Print11/11/2008 - Iron ore producers Rio Tinto Ltd and Fortescue Metals Group Ltd have each cut annual production of the steel making commodity by ten per cent after a slowdown in Chinese demand.
The move mirrors a decision last month by the world's largest iron ore producer, Brazil's Vale, to reduce output by 30 million tonnes a year in response to softening demand.
Rio Tinto chief executive Tom Albanese said the reduction from its Western Australia mines was to align production with revised customer delivery requirements after Chinese demand dropped in this quarter.
"We believe this will be a short, sharp slowdown in China, with demand rebounding over the course of 2009, as the fundamentals of Chinese economic growth remain sound," Albanese said in a statement.
The Reserve Bank of Australia (RBA) on Monday said China's annual growth rate had dropped back to a "still-rapid" nine per cent in the year to the end of September, reflecting measures to restrain domestic demand.
The central bank also said in its monetary policy statement released on Monday that it was increasingly clear the global commodity price cycle had peaked and that a price fall was expected in the months ahead.
Rio Tinto has revised its iron ore shipments for calendar 2008 to between 170 million tonnes and 175 million tonnes, down from 190 million tonnes and 195 million tonnes.
Steel companies worldwide have initiated a significant cut to production amid the global financial crisis leading to a weakening demand for iron ore, a key steel-making ingredient.
Fortescue, Australia's third largest iron ore producer, has brought forward a planned shutdown to upgrade port and mine processing facilities, reducing calendar 2008 output by 2 million tonnes or 10 per cent.
The company last month temporarily deferred plans to expand its operation in WA to 80 million tonnes per annum, but expects to ramp-up the mine to an annual capacity of 55 million tonnes by the end of March, 2009, "subject to market conditions".
BHP Billiton Ltd, the world's third largest iron ore producer, said there was no plans to cut output from its Pilbara operations in WA at this stage.
"We have no plans to cut production," BHP Billiton spokesman Peter Ogden told reporters.
But an analysts said cuts could still occur.
"I think you'll definitely see BHP come out with some news. They'll have to now," DJ Carmichael analyst James Wilson told reporters.
"There is an oversupply (of iron ore) in the Asian ports at the moment and there are no surprises these guys are cutting production."
BHP Billiton is expected to produce about 137 million tonnes of iron ore from its WA mines in 2008/09, up from 122 million tonnes in the previous corresponding period.
Mount Gibson Iron Ltd has been forced to sell its iron ore at a significant discount and will cut a third of its workforce after some of its customers defaulted on binding offtake agreements last month.
Rio Tinto spokesman Gervase Greene said the company did not expect to lay-off any workers as a result of the production cut.
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