Rio Tinto teams with China to reduce steel-making carbon footprint

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Rio Tinto teams with China to reduce steel-making carbon footprint

By Elizabeth Knight

Rio Tinto will partner with China’s largest steel producer to reduce carbon emissions from its steelmaking customers in a move that chief executive Jean-Sebastien Jacques insists is about business "not ideology".

China Baowu Steel and Rio, together with China's Tsinghua University, on Wednesday evening signed a memorandum of understanding that will see them working together to reduce emissions across the entire steel value chain.

Rio Tinto chief executive JS Jacques beefs up the company's environmental credentials

Rio Tinto chief executive JS Jacques beefs up the company's environmental credentialsCredit: bloomberg

It follows recent moves by Rio's rival BHP to reduce its own carbon footprint and that of its mainly Chinese customers. Steelmaking, which is heavily dependent on coal, is responsible for 7 to 9 per cent of the world’s greenhouse gas.

The developments come as some senior figures in the government have urged companies to focus less on environmental and social issues.

Asked if the push was a business decision or was made with an eye to other considerations, Mr Jacques said: "It's all about business. It's nothing more than that. We want to achieve the best supply chain for the steel industry. It's not about ideology," he said.

"We have to look at the entire supply chain from mining, shipping, steel making and transforming the steel as well. We have been in partnership with Baowu for 50 years. This is all about business."

The materials we produce have an important role to play in the transition to a low carbon future.

Rio Tinto chief executive Jean-Sabastian Jacques

Miners have come under intense pressure from environmental activists and some of their largest shareholders in recent years to improve their carbon credentials. Earlier this month environmental finance group Market Forces warned it would be turning its attention to Rio.

"This pioneering partnership across the steel value chain will bring together solutions to help address the steel industry’s carbon footprint and improve its environmental performance," Mr Jacques said.

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“The materials we produce have an important role to play in the transition to a low carbon future and we are committed to partnering with our customers and others to find the most sustainable ways to produce, process and market them. We are already doing this in aluminium and now, through this partnership, we will be doing it in the steel industry."

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However, earlier this year, Rio resisted a resolution coordinated by Market Forces calling for Paris-aligned targets to reduce its customer, or scope 3, greenhouse gas emissions.

Market Forces said Rio did so despite recognising the need to decarbonise the steel sector and that inaction could materially affect the value of its iron ore business.

In July BHP vowed to push its customers around the world to reduce their greenhouse gas emissions and committed to spend $US400 million ($590 million) on new technologies and strategies to reduce its carbon footprint and that of its clients.

BHP chief executive Andrew Mackenzie said in July that the company would set a public goal for its "scope 3" emissions, which include the greenhouse gases created by the steel mills and power stations that burn BHP's coal around the world.

China Baowu chairman Chen Derong said the company was committed to sustainable development and would achieve that through "intelligent manufacturing".

"We want to make a difference to the iron and steel ecosystem by developing greener factories and enterprises to deliver a cleaner, more sustainable steel industry," he said in a statement.

Rio Tinto did not specify how much funding it would contribute to the new process.

The move comes as iron ore prices are back under pressure, falling sharply on Tuesday on concerns about the outlook for Chinese demand.

Strategists said remarks from China’s central bank governor, Yi Gang, contributed to the steep about-face in sentiment.

"Mr Yi said that China isn’t in a rush to add massive monetary stimulus and must maintain prudent policy stance," ANZ Bank senior commodity strategist Daniel Hynes wrote in a blog post. "This dashed hopes in the market that additional support for infrastructure spending would support commodity demand."

Mr Hynes said concern about further industrial output restrictions in northern Chinese provinces, nor data showing increased iron ore shipments from Brazil, did little to improve sentiment on Tuesday.

"The province of Hebei said it was planning to order output to be closed to help improve air quality," he said. "Shipping data showing rising volumes heading to China also eased concerns about the ongoing impact disruptions in Brazil."

Spot iron ore prices came under renewed pressure as a result, seeing all major grades shed 2.6 per cent or more. The benchmark price for 62 per cent fines logged the steepest fall, sliding 3.5 per cent to $US90.83 a tonne, according to Fastmarkets MB.

with David Scutt

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