Rio Tinto alert on high-grade competition from Brazil



Source: THE WEST AUSTRALIAN

Rio Tinto iron ore boss Chris Salisbury has warned WA’s iron ore industry is facing growing competition from Brazil as a flight to quality by Chinese steelmakers delivers big premiums for the South American country’s higher-grade ore.

Speaking at a WestBusiness Leadership Matters breakfast in Perth yesterday, the mining executive delivered a shot across the bows of governments noting that Brazil’s overall tax rate was half what the company paid in WA.

He said while Rio was benefiting from the premiums being paid for its high-quality ore, Australia could not afford to become complacent.

“Many people only think about WA as a global iron ore supplier (but) we face some very stiff competition out of Brazil,” Mr Salisbury said.

“And in fact Brazil has a significant supply of even higher-grade iron ore and you can see obviously with the market dynamic in China that our competitors will be moving to take advantage of that.

“I don’t think we should be complacent about where capital will flow … or the effect it could have on what is a strong industry in WA for now.”

A government crackdown on pollution in China has forced old inefficient steel mills to close, leaving the remaining mills to seek higher-grade iron ore to maximise output while minimising emissions. Recent high steel margins have also enabled mills to absorb the higher costs of premium ore.

The trend has forced lower-grade producers to accept a bigger discount for their ore and while Rio’s Pilbara blend product tracks the 62 per cent benchmark price, giant Brazilian producer Vale enjoys a significant premium for its product which contains an average iron grade of more than 64 per cent.

The tyranny of distance for Vale shipping to China has delivered a cost advantage to WA’s premium producers in the past, but the margin is closing.

Mr Salisbury insisted demand for Rio’s consistent 62 per cent Pilbara blend product remained very strong, which he said placed the company in good stead in the changing market.

His comments came as stockpiles of iron ore at Chinese ports, mainly consisting of low-grade ore, hit a fresh record this week.

Some commentators expect the big price spreads across ore grades to moderate this month as China eases winter restrictions on steel output, aimed at curbing pollution.

Mr Salisbury announced yesterday Rio would expand its driverless haul truck program to a fifth iron ore mine in the Pilbara, with 15 trucks at its West Angelas mine to be retrofitted with so-called Autonomous Haulage System technology.

Source: THE WEST AUSTRALIAN