Sunday, October 14, 2012

Rio Tinto ‘more cautious’ on short-term outlook

Mining giant Rio Tinto CEO Tom Albanese on Tuesday took a more cautious stance on the prospects for the next few quarters, citing volatile macroeconomic conditions.

While economic growth in China remained robust, the Rio Tinto CEO pointed out that it was moderating and added that growth in developed countries remained “slow and uneven”.

Rio Tinto has lowered its estimates for Chinese gross domestic product growth to just below 8% this year.

“Significant stimulus efforts have been announced in China, the US and Europe, but its uncertain exactly when we will see the impact of these on our markets. Given this, and the considerable price fluctuations in recent times, we are somewhat more cautious on the outlook over the next few quarters.”

Rio Tinto also pointed out that iron-ore and copper prices were expected to remain volatile in the near future.

The company also stated that about 100-million tons of primary Chinese iron-ore production had become unprofitable and that a large portion of this had already been curtailed.

UK-based investment bank Fairfax commented that Rio Tinto’s downgrade on Chinese growth brought its outlook more in line with the market. “The tone of Rio’s seminar is not surprising given the current economic backdrop,” it added.

With the continuing volatile short-term environment, Rio Tinto was looking at further reducing costs, primarily in operating-, evaluating- and sustaining-capital costs across the business.

“The drive to reduce service and support costs so far has produced savings of $500-million a year,” the company added.

Despite the negative short-term outlook, Albanese said that the longer term picture remained positive, with increasing urbanisation in emerging markets driving strong demand growth across a range of commodities, and a slower supply response from the industry.

“Our business remains resilient in this environment, and our operations are performing better than our peers, reflecting our consistent strategy of running long-term, cost competitive operations. We aim to maintain our single A credit rating and are driving our cost reduction efforts harder and faster,” he said.

Edited by: Mariaan Webb