Rio Tinto Group, the world's second-largest iron ore exporter, will cut output at its mines in Western Australia by 10 percent because of reduced demand from steel makers in China, following the lead of its larger rival Companhia Vale do Rio Doce.

"This reduction is a prudent move to align production with revised customer delivery requirements in light of the fourth-quarter drop in Chinese demand," Tom Albanese, chief executive officer of the London-based company, said yesterday in a statement.

Albanese said the slowdown will be short, forecasting demand to rebound next year in China. Slowing global economies have slashed steel demand, damped prices and slowed exports.

"Rio is facing reality" and its earnings will be reduced significantly this year, Peter Arden, an analyst at Ord Minnett Ltd, an affiliate of JPMorgan Chase &Co, told Bloomberg News. He expects contract ore prices may drop 10 percent next year and fall again in 2010. "This is about as bad as it gets."

Rio Tinto's shares rose 7.9 percent to A$78.00 (US$54.14) at the close of the Australian stock exchange. Shares in BHP Billiton Ltd, another Australian mining firm, rose 7 percent, compared with a 1.4-percent gain in the benchmark index.

Steel production in China, the biggest maker of the metal, will rise at least 5 percent next year because of the stimulus package announced on Sunday, Daiwa Securities Group Inc said yesterday.

Spot iron ore prices rose for the first time in six months on November 7, with prices at Qingdao, China's biggest iron ore port, advancing 3.7 percent to 560 yuan (US$82) a metric ton.

Fortescue Metals Group Ltd, Australia's third-largest iron ore exporter, said yesterday it's bringing forward a planned shutdown of its port and mine processing plant, reducing production this year by about 10 percent. More normal conditions are expected next year and beyond, the Perth-based company said.

The world's largest producers of aluminum, iron ore and steel are cutting output and reviewing investment plans. Brazil's Vale began iron ore output cuts last month and doesn't expect a market recovery until next year. BHP, the world's third-biggest exporter of the ore, may have to cut output, Ord Minnett's Arden said.

"We have no plans to cut production," BHP spokesman Peter Ogden said.

(Shanghai Daily November 11, 2008)