LONDON (Reuters) - Global miner Rio Tinto (RIO.L) cut its growth forecast for China and said it was stepping up efforts to cut costs, having already slashed $500 million, faced with an uncertain global outlook.
Rio Tinto, the world’s second-largest iron ore miner with more than 80 percent of its earnings in 2012 expected to come from the material, is heavily dependent on Chinese steel demand picking up and is counting on Chinese infrastructure spending plans to drive that demand.
“Significant stimulus efforts have been announced in China, the U.S. and Europe, but it’s uncertain exactly when we will see the impact of these on our markets,” Rio Tinto Chief Executive Tom Albanese said on Tuesday.
“Given this, and the considerable price fluctuations in recent times, we are somewhat more cautious on the outlook over the next few quarters.”
Rio Tinto cut its forecast for Chinese economic growth to just below 8 percent, from 8 percent previously, in line with the International Monetary Fund’s revised forecast on Tuesday.
“Economic growth in China is robust but moderating, and is slow and uneven in developed economies,” Rio said in a statement.
Iron ore prices slumped 42 percent from a high in April to a three-year low of $87 a metric ton last month. While they have rebounded to $110, prices remain well below a perceived floor at $120, the point at which high cost Chinese producers would lose money.
Rio estimated around 100 million metric tons of Chinese iron ore production had become unprofitable and said it “sees evidence on the ground that a large proportion of this has already been curtailed.”
The comments came ahead of a briefing on the company’s copper business, which has a brighter near term outlook, although it flagged its newest project, the massive Oyu Tolgoi copper and gold mine in Mongolia, may be delayed due to prolonged talks with China over power supply to the mine.
The company has previously said it was on track to start commercial production at Oyu Tolgoi in the first half of 2013, but on Tuesday that target was missing in Rio Tinto’s comments.
It said it remained “optimistic” it would reach a power supply deal with China. Once that is signed, first ore would be processed within six weeks, first concentrate production would start a month later, with commercial production to begin three to five months after that.
It expects copper production across the group to increase from 2013 thanks to improving grades at existing mines and the start of production at Oyu Tolgoi, forecasting a cumulative annual growth rate of 13 percent from 2011 to 2015.
Rio said it has cut $500 million in costs so far in service and support roles, and would now target cost cuts in operations, project studies and sustaining capital, predicting that capital spending, forecast at $16 billion this year, would peak in 2012.
“We aim to maintain our single A credit rating and are driving our cost reduction efforts harder and faster,” Albanese said.
Rio Tinto’s comments came after rival BHP Billiton (BHP.AX)(BLT.L) confirmed earlier on Tuesday that it is targeting job cuts in its iron ore business, its most profitable arm, adding to mining job losses around Australia.
Reporting by Clara Ferreira-Marques; Additional reporting by Sonali Paul in MELBOURNE; Editing by Kate Holton and Ed Davies