China's Economy Shaping Up for Positive 2018, Rio Tinto Says

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  • No. 2 miner last week reviewed outlook for its top customer
  • Rio urging Australia’s government to solve energy price spikes

Jean-Sebastien Jacques.

Photographer: Brendon Thorne/Bloomberg

Latest indicators on China’s economy point to continued growth through 2018, according to mining giant Rio Tinto Group, which counts the world’s No. 2 economy as its biggest customer.

“Are we concerned about the Chinese economic health? The answer is no,” Chief Executive Officer Jean-Sebastien Jacques told reporters Thursday following an annual meeting in Sydney. “The indications are positive for 2018 as well, but it’s early days.” He revealed he’s visited the nation five times in the past nine months.

Rio, which has about 200 staff in Shanghai and Beijing assessing data on China, including domestic mine output, last week reviewed the outlook for the economy in 2018, Jacques said. “The only concern I would have -- which is not about China by the way, it’s more a geopolitical issue -- is if there was to be a big shock in the system.”

Growth in China unexpectedly picked up to 6.9 percent in the first quarter, clocking its first back-to-back acceleration in seven years, as industrial output advanced and factory prices surged. Analysts projected faster economic expansion in each of the next four quarters in a Bloomberg survey from April 18 to 25, compared with forecasts in the March poll.

Rio declined 1.8 percent in Sydney trading Thursday to A$58.32, extending its decline this year to 2.6 percent.

Commodities markets have faded in 2017 amid concern that political uncertainty is curbing prospects for improved global growth and on uncertainty over the impact on raw materials demand in China from slower economic expansion and capacity cuts in smokestack industries. Rio generates about 43 percent of revenue in China.

Restructuring in China’s steel industry “doesn’t mean they will reduce the output,” and there may be opportunities for Rio as remaining mills move to higher quality imported ore, Jacques said. The reforms to curb capacity are among factors that means there’s likely to be continued volatility in iron ore prices, he said.

China’s “One Belt-One Road” initiative to develop new land and sea trade links with Asia, Europe and Africa and provide funding to aid infrastructure development “augurs well for demand for steel and iron ore in the region,” Fortescue Metals Group Ltd. Chief Executive Officer Nev Power told a conference Thursday in Sydney. “All the economies through Asia are starting to pick up the pace in terms of development,” he said.

Iron ore, Rio’s top earner, has tumbled about 28 percent since touching a more than two-year high in February as steel prices have declined, squeezing margins for mills. Investors are weighing the outlook as producers in Brazil to Australia add to seaborne supply to threaten further price declines, while China’s record iron ore imports and strong steel demand offer support.

London-based Rio is continuing discussions on potential opportunities with state-owned China Minmetals Corp., he said, without specifying any details. Jacques met with Minmetals in Beijing in March, the Chinese entity said in a posting to its website at the time.

In Australia, Rio has cut about 100 jobs at its Boyne aluminum smelter in Queensland state amid gains in prices that have made some output unprofitable, Jacques told reporters.

Regional electricity price spikes and outages in Australia, one of the biggest natural gas and coal suppliers, is raising concern from businesses that the nation’s energy security is deteriorating. “It’s time for the federal government to step in,” Jacques said. “We have had a very open, very blunt conversation with the government.”

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