Mining giant Rio Tinto has flagged up 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 firm laid bare the impact on the industry.
It missed targets for iron ore, shipping 79.1m tons in the three months to June 30, down slightly from a year earlier and short of an estimate of 81m tons.
As the world’s biggest iron ore producer, Rio Tinto relies heavily on exporting ore mined in Pilbara, Australia, to China, where it is turned into steel that is often used in construction projects.
However China’s property sector is in the middle of a prolonged downturn caused by rising unemployment, high debts, and some homebuyers boycotting their mortgage payments.
Falling demand: Mining giant Rio Tinto has missed targets for iron ore, shipping 79.1m tons in the three months to June 30, short of an estimate of 81m tons
And despite Covid lockdown measures ending in December, China’s economy has struggled to bounce back – this week it said it had missed its economic growth targets, with youth unemployment at record highs.
All of this has proven a dangerous cocktail for Rio Tinto, which has witnessed iron ore prices slump 12 per cent over the quarter.
‘China’s economic recovery has fallen short of initial market expectations, as the property market downturn continues to weigh on the economy and consumers remain cautious,’ the company said in its quarterly report.
Over half of Rio Tinto’s £43billion revenues in 2022 were generated in China last year.
Nonetheless, bosses are pinning their hopes on a recovery, with shipments expected to hit as much as 335m tons for the year, at the very top end of estimates.
But it’s not just iron that is feeling the strain.
There was a 10 per cent decline in aluminium prices over the quarter, and an 8 per cent drop in copper prices.
Rio has also downgraded its expectations for refined copper production, alumina production, and output at its Canadian iron ore operations, largely driven by the wildfires that have battered northern Quebec.
Jakob Stausholm, Rio Tinto chief executive, said: ‘Production downgrades highlight that we still have much more to do.’
Matt Britzman, equity analyst at Hargreaves Lansdown, said: ‘The post-lockdown recovery from China has been far from the boom many were expecting to see this year.
‘Despite easing monetary policy, issues with the commercial real estate sector and a cautious consumer continue to keep a lid on growth.’
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