Rio Tinto warns of China risks and slowing global demand

Rio Tinto has warned that a slowing global economy and slumping confidence in China’s property market will create “further downside risks” for the mining giant as it seeks to unlock more iron ore production at its flagship Pilbara mines.

Rio’s key Pilbara division shipped 82.9 million tonnes of iron ore over the three months to September, but the company said full-year shipments are expected to be at the lower end of its forecast of 320 to 335 million tonne range.

Iron ore, a key ingredient in steelmaking, is Australia’s most lucrative commodity, bringing in $133 billion to the nation’s overall export earnings in the past financial year. Robust demand from China pushed benchmark iron ore prices to a record high of $US230 a tonne last year. However, iro ore prices have cooled on the back of China’s zero-tolerance approach to COVID-19, which has dampened China’s economy.

Pandemic-related disruptions to construction activity have curtailed China’s steel production and consumption, a key market for Rio’s ore, with demand falling about 9 per cent over the year to August, versus the same period in 2021. Despite that, Rio said its portside sales of iron ore in China are increasing. Portside iron ore cargoes are usually delivered within days of payment compared to seaborne cargoes that typically have a lead time of 30-60 days from the time of booking to arrival.

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With commodity prices trending downwards during the quarter, Rio Tinto chief executive Jakob Stausholm warned that demand was likely to taper further as the global economy cools. The mining giant added that global consumer confidence is waning, and aggressive interest rate hikes are increasing the risks of a recession in the US and Europe.

Shipments of iron ore out of the Pilbara were 4 per cent higher than the previous quarter despite unplanned rail outages on the Yandicoogina mine line and major derailment on Gudai-Darri’s line.

The miner has also agreed to modernise and update a 50-year-old joint venture agreement with Wright Prospecting that will unlock the Rhodes Ridge deposits in East Pilbara.

The deal will accelerate a 40 million tonne project that has for decades been in limbo as a dispute between the heirs of prospector Peter Wright and Gina Rinehart’s Hancock Prospecting played out.