Rio Tinto details iron ore capacity ramp-up plans

Sam Walsh has warned iron ore prices could fall further, while Rio Tinto has also detailed production ramp-up plans.

Departing Rio Tinto managing director Sam Walsh has warned the price of iron ore -- the nation’s biggest export -- could fall as a fresh wall of low-cost supply hits the market, saying he thinks it is too early to call a bottom for commodities prices.

The comments come with iron ore trading at $US60 and the Federal Government this week boosting its 2016-17 price forecast to $US55 a tonne, higher than the current market consensus.

Mr Walsh declined to comment on the government forecast but said the market faced more supply.

“There is additional supply coming on, Vale are bringing on more, (Gina Rinehart’s) Roy Hill is bringing on more supply, FMG (Fortescue Metals) seems to be increasing their volumes progressively this year, those will have an impact on supply and demand,” he said after the company’s annual general meeting in Brisbane today.

“Whether the Australian government’s forecast proves to be right, time will tell, but I don’t have a crystal ball. I am somewhat more negative than some of the other people that are saying the market has actually bottomed.”

On the wider commodities market, where Vedanta boss and former Rio chief Tom Albanese recently called the bottom, Mr Walsh was also downbeat.

“Some people can see a bit of an uptick and I don’t know if it’s hope or not, but you’ve got to look at the fundamentals and I think the world is still an uncertain place,” he said.

“The world hasn’t recovered totally from the global financial crisis and in that sort of environment,with a range of issues, whether it be immigration in Europe, whether it be Brexit, whether it be the US election, whether it be Chinese PMI (data), there are a range of issues that are still uncertain.

“I believe that in that environment, calling the bottom is a brave move. It will turn though, it’s a cyclical industry.”

The comments come as Rio Tinto chairman Jan du Plessis says the miner plans to ramp up its West Australian iron ore operations up to their full 360 million tonnes-per year capacity in the next few years.

“We have installed capacity capable of handling 360 million tonnes per year, we are currently about 20 to 30 million tonnes short — we certainly, over the next few years, intend to fill the infrastructure capacity,” he told the company’s annual general meeting in Brisbane.

Rio has not previously given any time frame for ramping up to full capacity.

It created further uncertainty about its plans to ramp up in February when it cut 2017 iron ore guidance.

The guidance cut from 350 million tonnes down to between 330 million and 340 million tonnes was attributed to a delay in its $US518 million-plus Autohaul driverless train program, which appears to be now costing a lot more just from lost profit.

But the delay also helped boost iron ore prices and caused some analysts to wonder if supply was being held back to match market demand.

Mr du Plessis said the company remained positive about iron ore demand and was not adjusting its previous forecast that Chinese steel production would grow to 1 billion tonnes a year.

He added Rio has no intention to expand its port and rail capacity beyond 360 million tonnes.