Rio Tinto CEO says demand to grow

Rio Tinto Group's operation centre in Perth, which uses networks to control all Pilbara operations up to 1,500 kilometres away. Provided to China Daily

Miner wants to build relations as iron ore market gets competitive

The world's second-largest miner, Rio Tinto Group, faces an ever more competitive iron-ore market.

It wants stronger relations with China, the world's biggest steelmaker.

"As China continues its urbanization and industrialization process, the steel demand will keep growing," CEO Sam Walsh, 64, said. "We are confident that our products will be needed in the future."

He has visited China nearly 50 times.

It shows his company's commitment to the country and his interest and affection for it.

Walsh was appointed head of Rio Tinto on Jan 17, 2013. His trip to Beijing in March was his fifth since taking the post.

He replaced Tom Albanese at the top of a company that had to write off $22 billion over two years.

He said his strategy remains unchanged: continuous commitment to the market, cutting costs and supplying high-quality products.

In 2013, Rio Tinto produced 266 million tons of iron ore, an annual increase of 5 percent. China drives over a third of company revenue.

Higher-grade ore is demanded by Chinese steel mills, Walsh said. The government focuses ever more on the environment and enforces rules on factory emissions.

Cities such as Beijing suffer from pollution.

China imported 819 million tons of iron ore in 2013, up 10.2 percent year-on-year, according to customs data.

Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, said China's iron ore imports will rise to 870 million tons in 2014 with annual growth of 6 percent.

China has depended highly on iron ore from Australia and Brazil. That accounts for around 70 percent of the nation's iron ore imports. The National Development and Reform Commission, the country's economic planner, encourages Chinese companies to buy overseas iron ore assets to cut dependency on foreign supply.

China will meanwhile increase ore imports from Africa to diversify supply.

China is establishing trade relations with 15 African countries to secure iron ore supplies, Li said. Africa accounts for only 8 percent of China's iron ore now.

Against that background, major international mining companies are expanding output and capacity to grab a bigger market share in China. That's even when prices for the mineral are falling.

Since the beginning of 2014, iron ore fell 20 percent from the same period last year.

Rio Tinto said in its corporate report that iron ore output for the first quarter grew 8 percent year-on-year to 66.4 million tons.

It expects to produce 295 million tons in 2014 and expand annual capacity of its port, railway and power infrastructure to 360 million tons by the first half of 2015.

BHP Billiton Ltd, an Australian miner, reported 49.57 million tons of iron ore output for the first quarter, 23 percent annual growth.

In its first-quarter report, the company raised its yearly output target to 217 million tons.

Perth, Australia-based Fortescue Metals Group Ltd increased output 56 percent to 31.5 million tons for the first quarter.

China has tried to cut overcapacity in domestic steel mills to reduce pollution and keep development sustainable. That leads to increased output and delivery from foreign miners competing for market share.

"My business is long-term and a network-building business," Walsh said.

The job isn't just supplying commodities. Our relations go deeper, he said.

Increasingly, foreign companies are spending in China. They can be driven by lower costs or goodwill. They all seek mutual benefit.

In the past four years, Rio Tinto spent $5 billion on Chinese equipment and services.

Walsh said the company will continue to buy in China. That's based on Rio Tinto's active purchasing team of more than 50.

"China's manufacturing is always there. While others think that there's a long way to go, I believe in many ways, China has proved its capability in manufacturing," Walsh said.

During the China Development Forum in Beijing during late March, Walsh spoke on China's manufacturing.

He said running a modern mining business is like running a massive factory, with a global supply chain, advanced technology and production line.

"The majority of Rio Tinto's customers are manufacturers which depend on us for a secure supply of raw materials," he said. "We depend on the health of the manufacturing sector to drive demand for our products. We also depend on them for equipment, technology, and management techniques."

"These drive our business, helping us to keep costs down, by operating as efficiently and productively as possible."

Ten years ago Rio Tinto bought almost nothing from China. Trade was in one direction.. That's changed dramatically. Goods from truck bodies and rail cars to accommodation units and ship loaders bought from China are being used in Rio Tinto's operations around the world.

"This rapid growth in procurement reflects the growth in quality and sophistication of the Chinese manufacturing sector," said Walsh.

Premier Li Keqiang met leaders of foreign companies on March 24. At the meeting, Walsh was the first CEO to ask questions. He said that was because China has a long friendship history with Rio Tinto and the company's size, its scale of business in China. It has done it for more than 30 years.