TIMELY REMINDER THAT IT ISN’T ALWAYS ALL ABOUT CHINA

RIO Tinto’s commitment to spend $1.55 billion on maintaining its iron ore output in the Pilbara is a timely reminder of a series of important realities.

The first is that our continuing resources boom – and the particular, utterly extraordinary, exercise of digging up and shipping into the northern hemisphere nearly one billion tonnes of Western Australia every year – is not all and only about China.

Rio is spending the money on mines it only partly – 53 per cent – owns. The rest is owned by two companies named Mitsui and Nippon.

If you don’t know which country they hail from, there’s a big clue in the second name: Nippon means Japan.

Yes, Japan was buying our iron ore – and coal – decades before China started. Even more critically, Japanese companies ploughed their own money into developing the projects.

They did so by being partial owners and by writing long-term contracts, which enabled the projects – and companies like Rio and BHP – to get long-term debt finance from the banks.

Despite the reality that China is now and will continue to be the absolute (and indeed African, not Asian) elephant in the Pilbara room, the iron ore sold to Japan is still an important component of Pilbara – and Australian – prosperity.

That’s both directly in the still significant tonnes of iron ore Japan buys and also in the global demandsupply equation that delivers an attractive price on all the ore sold. Japanese demand is also critical in the coal – both types – market and even more so in LNG.

China is our single most important trading partner; but Japan remains our best trading partner, bar none. Two further points. The Rio project will employ 1200 people in construction, but not a lot of ongoing workers. Part of the exercise involves moving to self-drive trucks.

This points to a decidedly 21tst century complexity about where the benefits of this sort of activity end up, when you feed in who owns the profits and where most of the equipment capex and even the construction spend actually takes place.

Second point: we are going to keep selling a lot of iron ore to China and Japan, which will continue to emit a lot of CO2 as they turn it into steel – all the way through the 21st century.