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Rio Tinto chief executive Jakob Stausholm has called on western governments to “learn from China’s example” in industrial policy as he urged them to do more to speed up the clean energy transition.
The US Inflation Reduction Act had not yet “had any significant impact” on manufacturing output, said Stausholm, as he gave the opening address at London Metal Exchange week, the industry’s most important annual gathering, on Monday.
An FT investigation found that 40 per cent of the biggest US manufacturing investments announced in the first year of President Joe Biden’s flagship IRA programme have been delayed or paused.
This has hit mining and smelting companies such as Rio Tinto and rivals BHP, Teck Resources, Alcoa and Freeport-McMoRan, which had hoped for a bigger boost from western efforts to shore up domestic manufacturing and encourage home production of critical resources.
Stausholm pointed to the closure of aluminium smelters — and the important role of the metal in the energy transition — as an example of how western policies had failed to achieve their goals.
“One of the unforeseen consequences of decades of globalisation has been the decline of manufacturing in the west,” he said.
“If we take aluminium production as an example, there has been a sharp drop in western smelting capacity over the last 20 years.”
US aluminium smelting capacity has dropped by 77 per cent since the turn of the millennium and European aluminium smelting capacity is down 22 per cent, according to his presentation. High energy costs as well as the huge build-up in Chinese smelting capacity have contributed to the decline.
For Rio Tinto, which owns a network of aluminium smelters and is also a big producer of copper and iron ore, the speed of the energy transition is a key indicator of the future supply of its minerals. It bought Alcan, the North American aluminium company, in 2007.
As LME week — a significant gathering of metals producers, consumers and traders — kicks off in London this week, the poor state of metals demand in developed economies such as Europe and the US has been a big talking point among traders and producers.
The energy transition will be a leading driver of demand for metals such as copper, aluminium and lithium because it will require a vast buildout of electrical grids and infrastructure.
“Most of the world is not moving quick enough to electrify,” said Stausholm. “In the US and Europe, electricity generation has hardly grown.”
“While it’s still too early to tell what the outcome of policies like the IRA will be, we haven’t yet seen any significant increase in output. There is currently not enough evidence to suggest western re-industrialisation has taken hold.”
He suggested that “western countries can learn from China’s example of replication at scale, delivery at speed and a tightly integrated supply chain with supporting infrastructure”.
On Monday, prices for iron ore, a vital steelmaking ingredient, surged 10 per cent due to Chinese stimulus measures announced last week.
Those measures, which include reducing the cost of household mortgages and introducing a $114bn lending pool for capital markets, also propelled the Chinese stock market last week to its best week since 2008.
China is Rio Tinto’s largest customer, and Chinalco, the Chinese aluminium giant, is the company’s largest shareholder, owning 11 per cent of its shares.