Rio Tinto signals uneven global recovery

Rio Tinto has flagged sustained Chinese demand for iron ore but weakness in its US, European and Japanese sales, underscoring the uneven global recovery from the coronavirus emergency.

The Anglo-Australian mining group said on Friday that China’s seemingly insatiable appetite for iron ore was enduring as Beijing ramped up infrastructure spending to combat the pandemic’s economic impact.

But a “meaningful” recovery had yet to start in Europe or Japan and was likely to be “subdued when it does”, the company said in a trading update, while the US copper market remained weak and the aluminium industry continued to struggle from slack car sales.

Rio’s flagship Australian iron ore business shipped 86.7m tonnes of the steel ingredient in the three months to the end of June, up 1 per cent from a year ago and the fourth-best quarterly performance in the company’s history.

“Our iron ore assets are performing well in a strong pricing environment and we are on track to meet our 2020 iron ore guidance,” said chief executive Jean-Sébastien Jacques. “Despite various Covid-19-related challenges, all our assets have continued to operate.”

The price of iron ore has risen more than 20 per cent this year to more than $110 a tonne — the best performance of any major commodity — because of strong demand from mills in China, which cranked out 500m tonnes of steel in the first half of the year.

The country imported more than 100m tonnes of iron ore in June, up from 87m in May and the highest monthly figure since October 2017.

Beijing has supported industrial activity over recent months, partly by increasing the amount local governments can borrow for infrastructure projects. 

However, some economists say China’s reliance on debt-fuelled investment in infrastructure and real estate is storing up problems for the future. 

For Rio, the world’s biggest producer of iron ore, this year’s price rise is a boon. The company, which expects to produce 324m to 334m tonnes of the commodity this year, says its mining and processing costs will be just $14 to $15 a tonne.

However, Rio’s strong operational performance over the past quarter — production was up just 1 per cent compared with down 18 per cent at rival Anglo American — has been overshadowed by the destruction of a 46,000-year-old sacred Aboriginal site to make way for a mine expansion.

Rio and Mr Jacques have been criticised for their slow response to the blasts, which are the subject of a board-level investigation.

“We remain even more committed to our relationship with communities, following the Juukan Gorge events in the Pilbara, and we are engaging extensively with traditional owners around our operations and across Australia,” said Mr Jacques.

Analysts said Friday’s trading update was largely in line with expectations, with a better than expected performance from some of the company’s copper assets.

However, one surprise was news that Rio is progressing with plans to develop a huge iron ore deposit in Guinea and update its port and rail designs. 

According to recent reports in China, Baowu, the world’s biggest steelmaker, has acquired a stake in the project from Chinalco, Rio’s top shareholder, and has plans to develop the mine.

“Although an early-stage comment, we would view this as a change in tack from Rio management and a potentially interesting one,” said Tyler Broda, analyst at RBC Capital Markets.

“With Chinese steel production levels near highs, a potential rival Simandou project also under way and BHP looking to potentially expand its port capacity, Rio could be making the first moves to protect its iron ore market share,” he said.