Rio Tinto is not allowing itself to be fazed by the clouded outlook for iron ore demand in China with talk the current production cuts in the north of the country will be made permanent.
The Metal Bulletin’s iron ore index price dipped closer to $US60 a tonne overnight as prices eased on weaker demand. The Metal Bulletin’s 62% Fe Iron Ore Index price was $US61.47 per tonne down 77 cents. Prices are down from the most recent peak of around $US73 a tonne back in August, despite record imports of ore in September (102.8 million tonnes) and record levels of steel production up to September when output dipped.
The shakeout in demand several years ago saw big producers like BHP, Fortescue, Rio Tinto and smaller players slash expansion plans and look to slash costs – all three now have costs around the $US12 a tonne as they look to improve profit margins and maximise returns.
Big investors demanded higher profits and capital returns and Rio and its rivals have responded so some of these investors will look at the Rio reports with some scepticism.
But now there’s talk that Rio Tinto could be about to reactivate its previous ambition production plans.
The Financial Times reported overnight that Rio seems to be back on track to expand production past 400 million tonnes a year.
In a memo posted on an internal message board last month, chief executive Jean-Sébastien Jacques has told its staff the potential of Rio’s Pilbara iron ore business business was clear: “it could/should start with a 4 in the medium to long term subject to market conditions,” the FT reported.
Rio will export 330 million tonnes of ore in 2017 and in the past had forecast talked about increasing output from the Pilbara to 360 million tonnes, although it has never set out a precise timeline.
Since he took the reins in July 2016, Mr Jacques has boosted returns to shareholders, further strengthened the company’s balance sheet and introduced a market-orientated mindset.
He’s said that Rio will always put “value over volume” and not pump out extra tonnes just to take market share, which seemed to be the previous justification for the ambitious output forecasts.
“We will grow our business in a very focused way,” Mr Jacques says in the memo, describing its Pilbara mines as one of three “clear areas” of investment. “It is about quality and not quantity (value over volume). It is better to deliver few world class projects very well… than pursuing too many average projects,” The FT reported the memo as saying.
The other areas of investment mentioned in the memo are bauxite, copper and gold. Mr Jacques also highlighted Rio Ventures, a new unit that has been set up to find and invest in early stage mining projects.
Of course Rio has some major distractions in the US Securities and Exchange Commission’s fraud charges over the Mozambique coal debacle and losses of $US4 billion against former CEO, Tom Albanese and CGO, Guy Elliott, as well as continuing investigations.
ASIC here is also looking at the same case and hinted at progress this week. While there’s a further investigation by regulators around the world into dodgy payments linked to Rio’s involvement in the Simandou iron ore prospect in Guinea in West Africa.
