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19. March 2008

Rio Tinto report says demand for main product groups could triple

In its 2007 annual report Rio Tinto said it is premature to assert that prices for its metals products had peaked, despite the threat of a U.S. recession.

Global miner Rio Tinto Ltd/Plc downplayed the impact of mounting U.S. economic turmoil on its businesses, forecasting strong demand for its main revenue earners led by a commodities boom in China.

In its 2007 annual report, Rio also reiterated its opposition to a $147 billion tie-up proposal by larger rival BHP Billiton Ltd that could create a super mining house with powerful sway over global supplies of minerals.

Rio, the world's biggest aluminium maker and a top supplier of iron ore, copper and other industrial staples, said it was premature to say the price cycle for its products had peaked, though it was mindful of short term risks of an expected slowdown in the U.S. economy.

"However, the U.S. is now somewhat less important in world commodity demand than it was five years ago," Rio's chairman, Paul Skinner, said in the report.

Rio and BHP shares were 2.5 percent and 1.5 percent lower respectively on Monday, over concerns over metals demand amid turmoil in U.S. financial markets.

An emergency rate cut by the U.S. Federal Reserve and JP Morgan's takeover of troubled Bear Stearns at a low price, both announced on Sunday in New York, underscored the frailty of global markets.

But a sharp slowdown in the U.S. would have only a modest impact on growth in China and India, which are key growth markets, Skinner predicted.

"Projections for Rio Tinto's main product groups -- iron ore, aluminium and copper -- suggest that demand could potentially triple over the next 25 years," Skinner said.

"In the short term, with low commodity stocks and a likely continuation of supply side challenges, we expect solid global economic growth, led by China, to support strong increases in demand for most metals and minerals during 2008 and 2009," Skinner said.

He said he continued to view BHP's offer as undervaluing the company and its prospects for growth. On Feb. 6, BHP announced a pre-conditional takeover offer for Rio of 3.4 of its shares for each Rio share.

Rio, BHP and other miners have largely pinned future earnings growth on China's economic boom, given its standing as the world's top importer of iron ore, copper and other minerals and metals.

Rio, which has bigger aluminium and iron ore divisions than BHP, saw its underlying earnings in 2007 rise to a record $7.443 billion.

Underlying earnings are forecast to climb to around $10.8 billion this year, according to Reuters Estimates.

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