GLOBAL MINER Rio Tinto stuck to its $16 billion spending plans, despite first-half profit falling by a third, predicting a modest pickup in the Chinese economy later this year that should stimulate demand for iron ore.
The world’s second-largest iron ore producer yesterday joined rival mining majors Anglo-American and Vale in reporting earnings battered by commodity price drops and stubbornly high costs.
Rio said underlying profit fell 34 per cent to $5.2 billion, as a sharp drop in iron ore prices, weakness in aluminium and lower copper volumes took their toll.
That was above market expectations of a sharper drop to $4.9 billion. Prices for steelmaking ingredient iron ore have tumbled this year from 2011 highs, with benchmark prices touching their lowest in 2½ years last week as demand from China, the world’s largest consumer of the commodity, eases.
Rio is juggling bumper capital expenditure plans with volatile markets and an uncertain outlook. But while some rivals have begun to signal they could cut back, the miner has stayed firm on its own spending plans for 2012.
Arguably the most China-dependent of the majors given its focus on iron ore, Rio yesterday struck a more optimistic note than some rivals, pointing to a likely pickup in Chinese demand in the fourth quarter as government stimulus measures take effect.
“We are still selling at full volume,” chief executive Tom Albanese said. He is sticking to a growth forecast of about 8 per cent for China this year as the impact of measures to revive the economy would start to filter through.
China’s economy grew by an annual 7.6 per cent in the second quarter, the slowest pace in three years. Rio added to optimism with what it said were signs that stifling cost pressures on miners were starting to cool, echoing Australia’s Fortescue, which said severe skills shortages in mining hotspots were also easing.
Rio committed in June to spending $4.2 billion to expand its iron ore operations, including growing its Pilbara operations in Australia to 353 million tonnes of iron ore per year by 2015 as it battles to lead the race to feed China’s appetite for steel ingredients before growth there eases, flattening after 2030. – (Reuters)
