Rio Tinto Japan
By Chris Betros
Urbanization around the world depends heavily on companies like global mining giant Rio Tinto which are beefing up their iron ore divisions in anticipation of long term demand for steel production.
Currently, iron ore accounts for about 80% of Rio Tinto’s annual earnings. While all eyes are on China and other emerging markets, Japan remains a big market for Rio Tinto. In 2011, the Japanese market gave its best returns ever to the Rio Tinto group.
Heading the operation in Japan is Mr Nobi Yamaji who was appointed president of Rio Tinto Japan Ltd from Jan 1st 2010. Born in Tokyo, Yamaji obtained a degree in Economics from Keio University. He has a career spanning more than 30 years in the ferrous raw material sector, mainly in iron ore, coal, nickel and molybdenum, first at Mitsubishi Corp and then from 2005, when he joined Rio Tinto Japan as General Manager, Ferrous in charge of the Japanese iron ore business.
The affable Mr Yamaji has worked in Australia, the UK and New Caledonia. Fluent in Japanese, English and French, Mr Yamaji is also adding Chinese to his repertoire.
Japan Today editor Chris Betros visits the Rio Tinto office in Tokyo’s Chiyoda Ward to hear more about the business.
Q - How long has Rio Tinto had a presence in Japan?
A - About 50 years. We had 10 offices scattered around the country and in 1997 we gathered them all under one roof and unified our operations.
Q - How did the March 11 disaster last year affect your business?
A - First, it reinforced our priority focus on “Safety.” As a mining company, we have a strong safety culture, and at Rio Tinto this goes beyond our operations to offices such as ours here in Japan, as you may have noted from the safety briefing you received when you came in. Disasters can strike anytime, anywhere and we need to be prepared for them.
In terms of business, the disaster affected our end users’ production more directly than it affected us. We saw production drop at steel mills by about 10%. We were affected by delays in delivery of procured heavy machinery and trucks, for example. But production recovered sooner than we thought. In terms of rebuilding and reconstruction in the Tohoku region, there will probably be an increase in steel production in Japan, but that hasn’t happened yet. It’ll take a little while longer.
Q - Most of the big players in your industry have their eyes on China with its increasing demand for iron ore.
A - That’s correct. China accounts for the largest share of Rio Tinto’s global earnings. It is double what Japan was in the early 1990s. China will continue to grow and be the company’s largest market for the foreseeable future.
Q - How important a market is Japan for Rio Tinto?
A - Japan is a very important market for us. Around 17% of our global sales come from Japan, which makes it the second-largest after China. We have about 85 clients here. A stable contract relationship with customers and commodity suppliers is crucial and that’s what we have in Japan. We don’t have that in China yet; we’re still getting there. Beyond just sales revenue, more than half of our global procurement for mining equipment and so forth comes from Japanese companies, so that’s another way Japan is key to Rio Tinto. And many of our joint venture partners around the world are Japanese companies.
Q - Where do the bulk of Rio Tinto’s earnings come from?
A - Iron ore is the biggest earner. In 2011, Rio Tinto reported USD 15.5 billion earnings. Of that, USD 12.9 billion came from iron ore. Ten years ago, we had more diversified earnings with aluminum, copper, iron ore, diamonds, titanium and other minerals, but the iron ore slice of the pie has been growing.
Q - How does China affect the dynamics of the market for iron ore?
A - Everything is affected when a new fast-growing buyer emerges. In China, there are several hundred steel mills. Compare that with only five in Japan. Now you have all those steelmakers in China wanting to buy iron ore but they aren’t able to do so internationally. Buyers have difficulty in securing contracts for high-quality iron ore and making international deals. We deal with the top buyers in China.
Q - What about factors such as natural disasters, wars, political and economic instability?
A - They all affect the market price but I think the most crucial factor is the supply-demand situation. Is there a shortage? Is there an abundance? Where are the stocks? Is it cost-effective to mine them? All these factors determine the price. The buyer-seller relationship is also important for our company.
Q - Besides China, where do you see growth?
A - India, Africa and South America. The more their economies grow and urbanize, the more infrastructure and housing will be needed and that means a greater demand for steel.
Q - Is there enough iron ore to satisfy demand?
A - There are abundant iron ore resources in Australia, Africa, India and Brazil. As I said above, the question will be the cost factor as well as political factors in mining them.
Q - How about coking coal?
A - That’s a little bit different. In order to make steel, you need coking coal but supplies of good-quality, hard coking coal are limited.
Q - You mentioned earlier the importance of the buyer-seller relationship. How do you manage that in Japan?
A - Rio Tinto’s CEO comes to Japan at least twice a year to meet customers, and so do our 11 Executive Committee members and many more managing directors. I would say that very few other natural resource mining companies do that. With Rio Tinto, it is a team effort to manage the relationship with our customers.
Right now, things are changing—pricing structure, economic situation, our relationship with customers. Everything is evolving. Naturally, our people in London and Melbourne are curious about what is occurring. So they depend heavily on us here to find out what is going on, report it and be in a position to react correctly and as efficiently as possible.
Q - Where are you hands on and where do you delegate?
A - I delegate as much as I can. I have general managers working on commercial discussions. They are specialists and all come from trading or manufacturing firms and are quite capable. I travel a lot to meet stakeholders, customers, government representatives and embassy people.
Q - Where do you get your staff from?
A - If you work in this industry, you know good people. Up until 2005, our model was to employ experienced trading firm personnel who had 30 years or more of networking experience in commodities. We didn’t have to teach them anything. They worked for us for 5 years and then retired. Now we use recruiting companies to get people in their 30s. They are in a position to step up and can be transferred to Singapore, Brisbane or Perth. Our third strategy is to recruit graduates. We have been contacting mining and engineering faculties at many universities to talk with professors. They recommended 20 English-speaking graduates last year. I was impressed with their potential. Last year, we hired one from Tokyo University.
Q - How well known in Japan is Rio Tinto?
A - We have 85 customers in Japan. That does not include stakeholders and government-related people. So of course, within the industry, we are well known. But if you go to Ginza and ask someone on the street about us, they’ll probably think we are from Brazil or they hear the word Tinto and think it is a red wine.
Since last year, we have put more emphasis on community relationships. We recently created a Japanese website and are trying to communicate more proactively about what we are doing and how big our presence in Japan is.
Q - What CSR activities is Rio Tinto involved in?
A - Among Rio Tinto’s key “pillars” are Health, Safety and the Environment. In our CSR activities since last year, we have been focusing on Tohoku and especially on children and young people, who are the most vulnerable. Right after the March 11 disaster, we set up a scholarship fund for Tohoku University Scholarship together with one of our key partners, Komatsu, to aid university students who would have found it difficult to continue their studies due to the disaster. It is a long-term scholarship, involving 400 million yen over 10 years, open to undergraduate and graduate students, including new students in the future.
In keeping with our “Health” pillar, this year we are looking to contribute to activities that support children’s emotional well-being, since this seems to be such a key need. We are working with the NPO Arts for Hope, which helps children express their feelings and deal with emotional trauma through art activities.
Q - What is a typical day for you?
A - I get up at about 5:30 AM. I walk for an hour with my two dogs. I read about 10-12 newspapers a day. I show up here about 9 AM. During the day, I’ll be attending meetings or I may be out meeting clients. Sometimes I go on site and visit our customers’ operations. I dine with clients most nights.
Q - How do you like to relax?
A - Depending on the season, I like to play golf, tennis, skiing, go horseback riding and I enjoy marine sports, too.
Source – Japan Today