Rio Tinto boss predicts China economic restructuring could boost demand for Australian iron ore

Rio Tinto boss Jean-Sébastien Jacques has said that China’s plans to restructure its its steel industry could boost demand for Australian iron ore, according to the Financial Times.

Iron ore, a primary ingredient in steelmaking, is the bedrock of Rio’s business. Market analysts have been warning that the global iron price faces a sharp fall this year, following a prolonged period of oversupply from China.

However, Mr Jacques remains optimistic, pointing to Chinese government plans to scrap 100-150 million tonnes of excess steel capacity as it strives to rebalance the economy away from its heavy reliance on investment-led growth and exports.

China is planning to eliminate many of its smaller steel mills, which tend to be more inefficient and polluting, replacing them with newer, larger and less polluting blast furnaces. Mr Jacques hopes that this will boost demand for the high quality Australian iron ore that Rio mines.

This analysis is supported by comments from Li Xinchuang, the vice-president of the China Iron and Steel Association, who this week told a conference in Perth: “the Chinese market will be served mainly by imported iron ore over a long period”.

Mr Jacques was more bearish on prospects for the aluminium sector, noting that the pace of restructuring in China is expected to proceed more slowly.

The Chinese government is said to be concerned about job losses in remote areas where workers are harder to redeploy, and domestic alumiunium production in January and February is up by 23 percent compared to the same point last year.