Iron ore will defy forecasts for a dramatic price collapse as China’s economy remains strong and the top buyer boosts demand for higher-quality imports, according to Rio Tinto Group, the second-largest exporter.
“I wouldn’t necessarily say that it’s going to fall off a cliff,” Chief Financial Officer Chris Lynch said Monday in an interview with Bloomberg Television’s Daybreak Australia. “I guess the key issue is that we have to be robust in case the price goes up, down or sideways, and that’s what we set out our business to do.”
Global exporters are benefiting as mills in China, the world’s top steelmaker, increasingly prefer higher-quality raw materials to raise efficiency and cut pollution, according to Lynch.
Iron ore, which accounted for about 60 percent of Rio’s profits last year, soared in 2016 to defy predictions that rising supply would overwhelm demand. Benchmark prices jumped the most in two months on Monday to the highest in more than two years.
“There’s another fundamental shift going on in China and that’s the preference for the more efficient and less polluting end of the industry,” Lynch said in the interview. The switch by mills to higher-quality imports will support Rio and other exporters, while China’s growth becomes less reliant on commodities as it balances toward consumption and services from a focus on infrastructure and construction, he said.
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