Rio Tinto has warned of a persistent slowdown in global commodity markets as the threat of recession in Europe and the US along with a property crisis in China weigh on iron ore demand.
The Anglo-Australian mining company said in its third-quarter update on Tuesday that commodity prices were expected to keep falling as “downside risks to demand” emerge. The price of iron ore contracts in Singapore has fallen more than 46 per cent from its most recent peak in March.
Although Beijing has increased policy support to restore confidence in its economy, the recovery has been uneven, Rio Tinto said, highlighting that the Chinese construction sector, the biggest market for Australian iron ore producers, remains weak.
“Slowing global demand poses downside risks to China’s strong exports, while consumers remain cautious of the property market,” the company said.
Iron ore prices fell by as much as 1.4 per cent on Tuesday morning in Singapore to $90.30 a tonne before recovering to $91.40 by midday.
Rio Tinto said it would still produce between 320mn and 335mn tonnes of iron ore from its mines in the Pilbara region of Western Australia this year but said that its output would be at the lower end of that range due to operational issues including technical problems at some of its mines and train derailments.
Still, the miner has been actively expanding its operations in recent months. It has signed a $2bn deal with the largest Chinese state-owned steelmaker China Baowu Steel Group — Rio Tinto’s largest customer — to develop iron ore mines in the Pilbara.
It also moved to take control of the Oyu Tolgoi copper mine in Mongolia at a cost of nearly A$5bn (US$3.2bn) and entered a joint venture with China’s Winning Consortium Simandou to start mining iron ore in Guinea.
Rio Tinto also said on Tuesday that it had entered a deal with Australian miner Wright Prospecting to unlock the value of what it called “one of the biggest and best undeveloped iron ore deposits on the planet” at Rhodes Ridge in the Pilbara.
The project has been stalled for years due to a legal dispute involving Wright and Hancock Prospecting, the company controlled by Australia’s richest person Gina Rinehart, but exploration work is set to commence on a mine that could produce up to 40mn tonnes of iron ore annually by the end of the decade, according to Rio Tinto.
Peter O’Connor, senior analyst at Shaw and Partners, said that the company’s production update was “reasonable”, adding: “Rio is yet to realise its full potential although that target is getting closer.”
The miner’s shares dropped as much as 1.6 per cent to A$92.63 before ending the day slightly higher at A$94.27.
Additional reporting by Hudson Lockett in Hong Kong