Rio Tinto expects downward pressure on iron ore prices

Rio Tinto's shares plunged Tuesday after an executive of the mining giant forecast a downward pressure on iron ore prices in the second half of 2013.

Rio Tinto's shares plunged Tuesday after an executive of the mining giant forecast a downward pressure on iron ore prices in the second half of 2013.

Greg Lilleyman, president of Rio's Pilbara iron-ore operations, expects new iron ore supplies and slower growth in steel demand to weigh on prices of the raw material, The Australian reported.

It comes as Australia raises exports and China's steel demand shows signs of slowing.

"We are going to see a number of projects bring supply on in the second half of this year around the globe," he said at a conference in Perth, Australia.

"Inevitably that is going to put some downward pressure on iron ore prices."

Spot iron ore prices have recovered since reaching a near three-year low in September. It has impelled miners with operations in Australia's remote Pilbara region to restart projects or approve new investments.

Despite the weakness in the iron ore price during the second half of last year, Rio has continued to invest in operations in the region.

The company hopes to reach an annual production rate of 290m tonnes of iron ore between July and September.

Goldman Sachs downgraded its rating on the stock to 'sell' from 'neutral', saying it expects a drop in earnings after Rio cut its iron ore price estimates.

In the wake of forecasts for weaker demand growth and falling prices, Lilleyman said Rio's projects faced significant hurdles of major capital investment.

Rio is working to cut costs by $5.0bn across all its divisions as it focuses on increasing output from Pilbara.

Shares fell 3.78% to 3,153.00p at 09:01 Tuesday.

RD

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