Rio Tinto upbeat on China capacity cuts

Workers maintain mining machinery at the Oyu Tolgoi copper-gold mine, jointly owned by Rio Tinto Group and Erdenes Oyu Tolgoi LLC, in Khanbogd, Mongolia. [Photo/Agencies]

The head of global mining giant Rio Tinto Group Plc said China's move to trim overcapacity in its steel industry would benefit his group and others like it, instead of hurting their business interests.

CEO Jean-Sebastien Jacques said in Beijing that China's plans to cut more overcapacity was 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, said the government would shut down smaller and more polluting blast furnaces while switching to using the newest, largest blast furnaces.

"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 said.

China sees massive overcapacity in its iron and steel sector and has vowed to continue with its overcapacity reduction 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 said he was 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 said.

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

The CEO said that considering the size of China's economy, a 6.5 percent of economic growth target still meant 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 said the mining group welcomes the Belt and Road Initiative, which would 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 said.

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