Mining giant upbeat on China capacity cuts

Posted on 31 March 2017

Source: China Daily

The head of global mining giant Rio Tinto Group says China's move to trim overcapacity in its steel industry will benefit his group and others like it rather than hurting them.

CEO Jean-Sebastien Jacques says that China's plans to cut more overcapacity were a good opportunity for the company because steel plants would resort to utilizing high-quality assets and higher-quality raw materials.

Jacques, head of the world's second-biggest mining company, says the government will shut down smaller and more polluting blast furnaces while switching to using the newest, largest ones.

"It could be a very good piece of news, with lots of opportunities and the reason why is that in order for them to produce exactly the same output, they will have to buy higher quality raw materials," he says.

China has massive overcapacity in its iron and steel sector and has vowed to continue reducing it this year, with a target of cutting 50 million metric tons of steel production.

While some commentators and analysts have portrayed the initiative as being a potential drag on iron demand in the world's second-biggest economy, Jacques says he is not concerned.

"I believe China's restructuring of its steel industry will help reduce pollution but will not lead to a drastic reduction of steel output," he says.

China's economic growth target for this year has been set at around 6.5 percent, lower than the 2016 band of 6.5 to 7 percent. Jacques says, however, he is as confident as ever about the company's business in the country and about China's economy.

The CEO says that, considering the size of China's economy, 6.5 percent growth still means a lot of demand for iron ore, steel and copper ore, and "we believe we will be selling more of our products in the country".

Jacques says the mining group welcomes the Belt and Road Initiative, which will lead to infrastructure improvements and provide a boost for companies in related sectors.

"For mining companies like us, there will be demand for iron ore and copper, both of which might be the best investments for growth," he says.

Jacques says China has been the company's biggest customer. Rio Tinto generates 43 percent of its global revenue from China, supplying lots of products including copper and iron ore for steel, bauxite for aluminum, and diamonds. 

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