Chinese slump knocks mining giant Rio Tinto
Chinese malaise hits mining giant Rio Tinto
Mining giant Rio Tinto has expressed concerns about a global economic slowdown as demand for raw materials continues to stagnate.
Just days after China reported a sharp slowdown in its economic output, the Anglo-Australian company exposed the impact on the industry.
It missed targets for iron ore, shipping 79.1 million tons in the three months to June 30, slightly less than a year earlier and less than an estimate of 81 million tons.
As the world’s largest producer of iron ore, Rio Tinto relies heavily on the export of ore from Pilbara, Australia, to China, where it is converted into steel that is often used in construction projects.
However, the real estate sector in China is in the middle of a prolonged downturn caused by rising unemployment, high debt and some homebuyers boycotting their mortgage payments.
Declining demand: Mining giant Rio Tinto has fallen short of iron ore targets, shipping 79.1 million tons in the three months to June 30, short of an estimate of 81 million tons
And despite the end of Covid lockdown measures in December, China’s economy has struggled to recover – this week it said it had fallen short of its economic growth targets, with youth unemployment at a record high.
All of this has proven to be a dangerous cocktail for Rio Tinto, which witnessed a 12 percent drop in iron ore prices over the quarter.
“China’s economic recovery has fallen short of initial market expectations as the real estate market recession continues to weigh on the economy and consumers remain cautious,” the company said in its quarterly report.
More than half of Rio Tinto’s £43bn revenue in 2022 was generated in China last year.
Nevertheless, bosses are pinning their hopes for a recovery, with shipments expected to reach a whopping 335 million tons for the year, right at the high end of estimates.
But it’s not just iron that feels the strain.
During the quarter, aluminum prices fell 10 percent and copper prices fell 8 percent.
Rio has also revised down its expectations for refined copper production, alumina production and production from its Canadian iron ore operations, largely due to the wildfires that have ravaged northern Quebec.
Rio Tinto CEO Jakob Stausholm said: “Production cuts highlight that we have a lot more to do.”
Matt Britzman, equity analyst at Hargreaves Lansdown, said: ‘China’s post-lockdown recovery is far from the boom many expected this year.
“Despite easing monetary policy, problems with the commercial real estate sector and a cautious consumer continue to weigh on growth.”