Rio Tinto chief executive Jean Sebastien Jacques said he has no real concerns about China’s iron ore demand in 2017, and the indications for 2018 are positive.
“The only concern I would have – which is not about China by the way, it’s more a geopolitical issue – is if there was to be a big shock in the system,” he said after the company’s annual general meeting in Sydney.
Rio Tinto confident amid iron ore boom
Global miner Rio Tinto put its focus on returning cash to shareholders after beating profit forecasts on the back of cost-cutting and a strong recovery in iron ore prices.
China is the biggest market for Rio Tinto’s commodities, and Asia accounts for around 70 per cent of its sales, but demand for its iron ore has been expected to taper as China’s steel production plateaus.
Mr Jacques said it is absolutely clear that the Chinese government will take whatever action is required to maintain economic stability.
Rio Tinto chief executive JS Jacques at the AGM. Photo: Daniel Munoz
“The key source of uncertainty is around – when you move to the end of the summer – are they (China) going to restart some of their mines,” said Mr Jacques.
China’s mines – largely less efficient than those in Australia and Brazil due to lower iron ore content – began cutting annual capacity from around 300 tonnes three years ago in line with falling iron ore prices, bottoming out at 250 million tonnes at the end of 2016, Jacques said.
But higher prices have made a revival in domestic mining more likely, allowing Chinese steelmakers to reduce raw material import costs and generating profits again for the mines.
The spot benchmark touched a 30-month peak of $94.86 in February, has eased around 13 percent this year, but iron ore still sells well above the sub-$40 a tonne plumbed in late 2015.
A rise in domestic ore could give mills some leverage to push for better deals on imports from Rio Tinto, Vale and BHP Billiton , which dominate the seaborne iron ore market.
“We’ve got around 200 people in China, in Shanghai and Beijing, and that is a big chunk of their work – to find out exactly what’s happening in the marketplace,” Jacques added.
The comments come as Australian miners maintain near-record shipments of iron ore to China and inventories at Chinese ports swell.
April shipping figures from Australia’s Port Hedland, used by BHP and Fortescue Metals Group, showed an 11 percent rise in exports to China to nearly 35 million tonnes.
Meanwhile, stockpiles of imported iron ore at China’s major ports topped 130 million tonnes as of Friday, up 950,000 tonnes from the previous week, and are not far off record levels.