Rio Tinto chief economist Vivek Tulpule spelt out yesterday why the mining giant is considering offloading its Canadian iron ore unit, tipping the price of the steel-making commodity would lose a third of its value over the next 18 months.
In his economic outlook and commodity prices presentation, the long-serving Mr Tulpule said he did not expect steel per capita intensity in China to peak until about 2030, and the equally important market of India to hit its height not before 2040.
Mr Tulpule did not provide a long-term price tip for iron ore.
But he said he expected the price to ease in the medium term, despite Indian's contribution to sea-borne volumes likely to remain constrained at well below 5 per cent.
Mr Tulpule said the price should gradually recede from levels around $US150 a tonne to $US100/t by September next year.
Mr Tulpule's forecast is in line with most market analysts, who are tipping falls, even to below $US100/t.
Rio's forecast is significant because iron ore is the miner's most important product, and price assumptions therefore are carefully reviewed before publication.
Mr Tulpule said there remained scope for price "fly-ups" because of a steep iron ore cost curve.
On Rio figures, iron ore producers outside of the top four - Rio, Brazil's Vale, BHP Billiton and Fortescue Metals Group - account for about 500 million tonnes of annual production but at a cost of $US60/t soaring up to $US250/t.
Although Rio's Pilbara operations are regarded as the lowest-cost in the business - of less than $US50/t including shipping and sustaining capital expenditure - its Iron Ore of Canada unit is not.
Mr Tulpule's presentation yesterday said IOC was producing at a cost approaching $US100/t, which would make it a marginal operation if Rio's assumption of what it refers to as the iron ore price "backwardation" happens.Rio is thought to have appointed corporate advisers to try to find a buyer for IOC, in line with new chief executive Sam Walsh's intention to step up the sale of non-core and underperforming divisions.
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