“Global economic conditions and sentiment dropped markedly in the second quarter,” Chief Executive Officer Tom Albanese said today in a statement. “We are keeping a close eye on the pace of the U.S. recovery, the continuing euro-zone crisis and the impact of efforts to stimulate the Chinese economy on the markets that we serve.”
Prolonged recession in Spain and slower expansions in emerging markets from China to India prompted the IMF to forecast growth of 3.9 percent from an April estimate of 4.1 percent. China’s economy, the world’s biggest metals consumer, decelerated for a sixth quarter because of weaker growth in the trade and manufacturing sectors.
“The euro-zone situation and the stifling U.S. recovery has been significant enough to now impact on some of that Asian growth,” Jamie Spiteri, head dealer at Shaw Stockbroking Ltd., said by phone from Sydney. Earlier, mining CEOs may have hoped Asian growth would offset a slowdown in the U.S. and Europe, he said.
Rio Tinto fell 0.1 percent to A$54.44 at the close in Sydney trading, while BHP Billiton Ltd., the world’s biggest mining company, gained 0.1 percent. Rio, the second-largest iron-ore shipper, today reported second quarter iron ore output of 48.6 million metric tons, meeting analyst expectations.
Analysts have trimmed 2012 profit estimates for Rio by an average $997 million in the past four weeks on lower commodity prices and slowing growth. Richard Knights at Liberum Capital Ltd. yesterday reduced his estimate to $11 billion from $13.3 billion, citing higher costs and weaker sales in power-station coal, lower iron-ore prices and rising costs in copper.
Rio is expected to post 2012 adjusted net income of $11.6 billion, according to the average of 14 estimates compiled by Bloomberg.
The company’s “Achilles heel” is its exposure to falling iron-ore prices, Credit Suisse analysts wrote in a July 12 report, cutting their 2012 profit forecast 24 percent. The price of iron ore delivered to Tianjin port in China, the largest consumer, has dropped 25 percent in 12 months to $130.10 a ton.
China’s slowdown, paired with concern about the future of some European economies, has weighed on commodity prices which have fallen 25 percent from a year high in July 2011. Jac Nasser, chairman of the world’s biggest mining company BHP Billiton Ltd. (BHP) said in May he expects prices to ease further. Rio said last month it would reduce its capital spending.
The company withdrew from talks to take part in a A$9 billion ($9.2 billion) port expansion in Queensland where some of its coal mines are located, Rio said in April, citing economic volatility and higher costs.
Rio produced 133,500 tons of mined copper, up 5 percent from a year earlier. It reaffirmed its estimate for 580,000 tons this year. Output of refined copper fell 45 percent because of lower grades at the Kennecott Utah Copper unit.
Aluminum output was 841,000 tons, down 12 percent because of labor disputes at the Alma unit during the quarter. Hard coking coal production gained 13 percent to 2 million tons as output from the Kestrel mine in Australia gained.