Rio Tinto sounds warning

Rio Tinto has warned that demand for commodities from China is slowing. Jessica Darnbrough writes.

Rio Tinto has warned that demand for commodities from China is slowing.

The company’s chief executive Tom Albanese said that the recent global financial turmoil had forced Rio Tinto to reconsider its divestment strategy.

“The long fore-shadowed deceleration in economic activity has resulted in a marked reduction in Chinese commodity demand growth from the overheated levels we saw in 2007,” Albanese said.

“In the near term, the Chinese economy is pausing for breath.”

The Australian Bureau of Agricultural and Resource Economics’ general manager of the resources and energy branch Jane Melanie said the recent economic crisis is now at the point where it is beginning to affect the real economy.

“What this means is that economic growth is likely to slow down over the next year,” Melanie told Australian Mining.

“We expect this downturn to be more severe in the United States and OECD countries, but emerging Asian economies such as China are more sheltered from the full impact of the turmoil, partly because a lot of the growth in China and other developing Asian economies is driven by domestic demands.

“Obviously, if the downturn is deeper than what we believe and if it goes wider to encompass more than just the OECD countries, then Australia may see a different picture of growth in China over the next couple of years. But, at this stage we are still looking at relatively high growth, around 9%.”

However, according to Albanese, China is not completely insulated from an OECD recession, which could see an adverse impact upon Chinese exports.

He said Chinese demand for steel making raw materials, copper and aluminium had slowed.

Rio Tinto, which has set quarterly production records for iron ore, bauxite and hard coking coal in the last quarter, said a plan to divest US$10 billion in assets by the end of the year was under review.

Melanie said that while Australia’s major exports were not in danger of slowing just yet, its minor commodities do not have the security they had a few months ago.

“There is a lot of volatility in the market at the moment and the commodities market is currently experiencing a roller coaster ride. It is difficult to determine what will happen with the markets in the coming months except to say that there will continue to be high levels of volatility,” Melanie said.

“That said, however, the falling dollar is a saving grace for the minerals industry in Australia.

“A lot of the commodities are traded in US dollars, and as the Australian dollar falls, its commodities are able to make more money.”

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