Rio Tinto Chief Executive Jean-Sébastien Jacques on Wednesday admitted he didn’t see the recent meteoric rise in coal prices coming. But he is already predicting the fall.
Jacques, named five months ago to run the world’s second-biggest mining company, said it’s now clear China’s mandate to rid its skies of pollution by restructuring its state-owned coal industry was behind a tripling of coal prices since January.
“I can tell you, we have been surprised by what the Chinese government did on the coking coal market,” Jacques told Rio Tinto’s annual investment day seminar.
“Let’s be clear, nobody saw it. But you can say for sure that at some stage they are going to increase capacity and coal prices will go down. There’s no doubt about it,” he said.
In April, China’s State Administration of Work Safety introduced new coal-production caps, restricting the number of annual working days for its coal miners to 276 days from 330 previously. China also imposed import restrictions and banned imports of coal containing more than 3 percent sulfur and more than 40 percent ash.
Jacques said the “big uncertainty” was the speed at which state-owned enterprises will continue to restructure, and also admitted to being unsure of where to next for Chinese policy on industry.
Beijing earlier this year pledged to cut as much as 240 million tonnes of domestic steel output over the next five years, leaving Rio Tinto to scale back its hopes that production would hit 1 billion tonnes a year. Rio is one of the world’s biggest importers of iron ore to China.
Rio Tinto also got it wrong on Chinese domestic iron ore production – a key determinant on how much iron ore China will import – said Jacques.
“If you had asked me the question six months ago, I would have said we believed they (Chinese mines) would produce 230 million tonnes,” Jacques said. “Today, all the signs are they are producing 260-270 million.”