It’s possible that China will experience a re-acceleration of steel demand in coming years, but this would have to involve a massive infrastructure programme, which isn’t currently the policy or direction of the authorities in Beijing.įor a left field example of contradictory thinking look no further than Lourenco Goncalves, the outspoken chief executive of U.S. The question for Rio is then, while it’s rational to maximise output even in the face of massive oversupply, how rational is it to stick to forecasts that are contradicted not only by the data, but also by the rest of the industry? Iron ore imports by China are also now in negative territory for the first 10 months of 2015, following the 12.3 percent drop in October from September. Rio will argue that for its forecast to be accurate, China’s steel output only has to rise at a rate of 1 percent per annum, but this ignores the current reality that 2015 consumption will see a decline in the region of about 5 percent from last year. Rio insists on sticking to its view that China will reach peak steel production of about 1 billion tonnes by 2030, even though the China Iron & Steel Association (CISA), and virtually every other analyst, thinks last year’s 823 million tonnes was the high-water mark.
“If you think for one second you can just take some volume out and no one else will actually move to fill that volume, then you are fooling yourself,” Rio’s iron ore boss Andrew Harding told a function in Perth last week.īut Harding’s rational behaviour doesn’t extend to recognising the reality that Chinese steel demand and output are most likely past their peak.
When you have the lowest cost mines in the world, why should you cut output, as this would simply allow higher-cost producers to take some of your market share. IO62-CNI=SI to slump about 75 percent since the record high in February 2011.Īt face value, this seems logical and rational. The world's second-biggest iron ore miner reiterated last week that it has no plans to cut output amid the current oversupply, which has caused spot Asian iron ore prices. Iron ore miners and steel producers are likely to claim they are acting rationally, but both are probably guilty of selective thinking and a touch of amnesia. LAUNCESTON, Australia, Nov 9 (Reuters) - It’s becoming harder to work out who are the most rational players in the global iron ore and steel markets, where contradictions are multiplying amid the persistent supply glut. (The opinions expressed here are those of the author, a columnist for Reuters.)
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