Rio Tinto chief starts mending fences in China

09:26, March 23, 2010      

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Rio Tinto Group, the world's third-largest mining company, extended an olive branch to Beijing on Monday after its chief executive said it was keen on helping China secure overseas mines and explore domestic deposits.

The diversified miner's comments come even as some of its former employees in China are facing trial for alleged bribery and stealing commercial secrets.

"A positive relationship with this market is vital to the continued success of our company," Tom Albanese, chief executive of the Anglo-Australian company, said at the China Development Forum in Beijing.

Rio is committed to strengthening its partnership with China, said Albanese.

Analysts said Rio's gesture signals its seriousness to repair relations with China, its biggest customer, considering the long-term business advantages.

Rio's relations with China soured after it walked out of a $19.5 billion investment deal with Aluminum Corp of China (Chinalco) in June last year and the detention of four Rio employees in Shanghai.

But the first signs of a thaw were seen last week when Rio and Chinalco, decided to join hands on developing the Simandou iron ore project in Guinea, Africa.

"This way of working is what we can bring to the partnership with Chinalco on projects of a similar nature to Simandou, involving Chinese outbound investment," Albanese said.

The chief executive said Rio would remain an important buyer of Chinese manufactured goods. "This year, Chinese companies will supply $400 million worth of manufactured goods to Rio Tinto globally."

However, analysts said Rio's soft-pedaling does not necessarily mean that the miner will make any major concessions at the annual iron ore price negotiations.

The 2010-11 iron ore negotiations are expected to arrive at a consensus on the price by April 1. That in turn, could put further pressure on Chinese steel mills as the three global miners, Rio, BHP Billiton and Vale are seeking hefty increases over the 2009 benchmark prices.

China Iron and Steel Association (CISA) confirmed last week that Vale had asked for a 90 to 100 percent increase in 2010-11 contract prices.

"We have seen how the three global miners have squeezed the profits of our steel industry. It is imperative that we diversify our iron ore suppliers and also expand in overseas markets to reduce dependence on them," said Xu Xiangchun, chief analyst of consulting firm

Chinese steel mills will not accept iron ore priced higher than the end products they make, said Deng Qilin, president of Wuhan Iron & Steel Group, and a former chairman of CISA.

Mills will also have to slash output and suffer losses or raise end product prices. That in turn will seriously affect downstream industries and disturb the economic balance, he said.

Source: China Daily

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