Australia's largest iron ore producer is taking on the bears as it insists that the world needs more of the steel-making ingredient even as the price of iron ore collapsed due to oversupply fears.
Rio Tinto Limited (ASX: RIO) steadfastly reiterated its forecast that Chinese steel production will peak at one billion tonnes and global demand for iron ore will increase to three billion tonnes by 2030.
This is one of the biggest contrarian views I've heard in a while, but Rio Tinto is confident it got its analysis right.
Underpinning the demand growth are 220 million Chinese looking to urbanise in the next 15 years after 320 million did so between 2000 and 2015.
Further, 120 million tonnes of marginal iron ore supply is expected to exit the market this year with another 45 million tonnes at risk of being taken off the market due to the low price for the commodity.
What is perhaps more significant to the iron ore debate is Rio Tinto's prediction that non-Chinese steel demand is expected to increase by 65% by 2030. This means the annual growth rate for steel demand from across the world will average 2.5% for the next 15 years, according to the miner.
Australia is too China-focused and we often forget that the world's second largest economy is not the only game in town – even though it feels like it.
India is expected to be the second largest consumer of steel after China by 2030 and low cost producers like Rio Tinto are best placed to capitalise on the trend.
The miner has used technology like driverless trucks and surveillance drones to shave off $200 million in maintenance capital expenditure, and the falling Australian dollar and energy price are giving it plenty of breathing space even with the depressed iron ore price that's struggling to stay above $US50 a tonne.
Rio Tinto's cash cost stands at around $US15.20 a tonne and it's ready to push the start button to build a new mine in the Pilbara, called Silvergrass, to lift production to 360 million tonnes a year from the region.
If Rio Tinto is right, it will be great news for its peers like BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG).
Rio Tinto said it conducted "rigorous analysis" to come to this contrarian position, although it's unlikely to win over hardened sceptics who're convinced there are more dark days ahead for the industry.
Shares in Rio Tinto dipped 0.3% to $49.41 and BHP shed 0.9% to $24.41, although Fortescue managed to inch up 0.3% to $1.86 ahead of the close.
I suspect the one who wins the debate will be the one who sounds most confident and has the most to lose from being wrong. My money is on Rio Tinto but my bet will need time to pay off.
