Depletion of iron-ore mines to underpin next decade's prices, Rio Tinto executive says

Rio expects to invest more than $13-billion on new mines, plant and equipment in the Pilbara region from 2025 to 2027 while estimating that 800-million tonnes needs to be added globally across the next decade to maintain supply.

Only 300-million tonnes has been committed.

"It feels like every year, the demise of iron-ore is very much being exaggerated," Matthew Holcz, Rio's iron-ore CE, told a lunch event at the Melbourne Mining Club.

"While I think the demand story has been reasonably well understood, I really think it's been on the supply side, so disruptions have been underestimated," he said, pointing to annual cyclones that strike Western Australia's Pilbara coast from November to April.

"I think the rate of depletion is very much underestimated," Holcz added.

"If we look at when the industry really boomed, 2005, 2010, 2015, a lot of those assets are now 15, 20 years old, and the scale of the iron-ore industry ... has increased."

Investment in new supply is only a fraction of that seen at the start of last decade, Holcz said.

"Marginal costs are a lot higher ... so we think there's good price support around the levels that we're enjoying in recent years."

China's demand is expected to be stable until 2030 before declining slightly, but the Global South will bolster demand, particularly India, which Rio expects to be a net iron-ore importer around 2035.

CHANGE IN LEVERAGE

On China's State buyer, now more assertive in price talks with suppliers, Holcz said tension between buyers and sellers always prevailed but Rio was focused on long term ties and "win-win" opportunities.

"The supply-demand balance has shifted," he told media in remarks on the sidelines. "You've got a market that is much more in balance, and certainly that's shifted some of the leverage."

Referring to union matters in the Pilbara, where workers are set to strike this weekend at BHP's Port Hedland operations, Holcz favoured a "direct relationship" with workers that he said has historically led to better outcomes.

Future capital spending decisions would hinge on competition, industrial relations and tax provisions elsewhere, areas in which Australia is falling behind.

Rio Tinto has no major exposure to iron-ore trader Radiant World, Holcz added.

Trading houses Vitol Group and Cargill have stopped trading with Radiant World over concerns that invoices provided to its banks may not have been valid, Bloomberg News said last week, which Radiant world denies.

"From a Rio Tinto perspective, there isn't any exposure there that we're concerned about," Holcz said.