GLOBAL MINER Rio Tinto said yesterday it would step up cost cuts because of an uncertain near-term outlook that includes lower growth this year in China, the world’s largest consumer of key commodities.
Rio said it had already made annual cuts in costs of $500 million in service and support roles, and would now trim in operations, project studies and elsewhere, cutting an unspecified number of jobs. It had imposed a hiring freeze for support staff this year.
The world’s second largest iron ore miner is widely seen as the diversified producer most exposed to China and its industrial recovery. More than 80 per cent of Rio’s earnings this year are expected to come from iron ore used in steelmaking.
Rio is counting on Chinese infrastructure spending plans to drive a pick up in steel demand. However chief executive Tom Albanese, speaking ahead of an investor seminar, said the miner expected to see the impact of Chinese stimulus efforts only progressively and after leadership changes starting this year.
“There is some good news coming. The question is when will all of this flow through, ultimately, to our markets,” Mr Albanese said.
Rio said it saw positive signs in China and the “deceleration is probably bottoming out”, pointing to indicators including rising home prices in major cities.
However, the company cut its forecast for Chinese economic growth in 2012 to “just below” 8 per cent from 8 per cent, in line with the IMF’s revised forecast yesterday.
Iron ore prices have slumped 42 per cent from a high in April to a three-year low of $87 a tonne last month. They have rebounded to $110, but remain well below a perceived floor of $120, where high-cost Chinese producers would lose money.
Rio estimated around 100 million tonnes of Chinese iron ore output had become unprofitable and said it saw evidence “that a large proportion of this has already been curtailed”.
The steep fall in iron ore prices and volatile markets have spurred Rio to speed up cost cuts, alongside peers including BHP Billiton and Anglo American. BHP confirmed earlier yesterday that it was targeting job cuts in iron ore, its most profitable arm. – (Reuters)
