Rio Tinto lifts iron ore output in Australia as mines in China struggle

Rio Tinto reported on Wednesday a sharp rise in iron ore output in Australia, as the global miner aggressively expanded shipments to China, banking on its low costs to displace local Chinese producers.

Mega-miners such as Rio, Brazil's Vale and BHP Billiton have been ramping up output, reducing their costs even further despite concerns of an oversupply as China's steel output growth moderates.

China's domestic industry is fragmented, with miners in coastal areas suffering under some of the highest production costs in the country - well above the price of imported ore from Australia and Brazil.

Ore from China's estimated 6,000 mines on average contains less than 30 percent iron, compared with Australian and Brazilian ores that typically have close to double that amount.

Rio Tinto, 1which competes with Vale, BHP and Fortescue Metals Group in the seaborne iron ore market, said it was on track to produce 295 million tons of the steel-making material in 2014, up from 266 million tons in 2013.

"Our iron ore expansion continues to deliver high-margin growth reinforcing our position as a low-cost producer," Rio Tinto said in its second-quarter production report on Wednesday.

Second-quarter iron ore shipments climbed 23 percent on the same period a year ago to 75.7 million tons, while production of the steel-making ingredient rose 11 percent to 73.1 million, the company said.

China has the world's biggest steel industry, requiring about 1 billion tons of iron ore annually.

Analysts have questioned the expansion plans of big iron ore miners in the absence of hard evidence -Chinese mines were closing and volatility in iron ore spot pricing markets.

Iron ore for immediate delivery to China stood at $98 a ton on Wednesday, but fell as low as $89 in mid-June, it weakest price in 21 months.

However, consultancy Wood Mackenzie forecasts that China will this year close up to 80 million tons of domestic mine production - more than a quarter of its total annual output.

BHP is lifting output to between 260 million and 270 million tons from a target of 217 million tons in 2014 and is likely to show a sharp rise in June quarter output when it releases its production data on Wednesday.