Rio Tinto Deal with Chinalco in Australian Hands
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By Kishori Krishnan Exclusive to Iron Investing News
Rio Tinto Ltd. (LON:RIO) gave a gloomy assessment of global commodity markets Tuesday, saying there is unlikely to be much of a rebound this year and warning the downturn will continue to hit its profits. The downbeat outlook reinforces the company’s message that it needs to proceed with a planned US$19.5 billion deal with Aluminum Corp. of China (SHA:601600), or Chinalco, to ease its US$38.7 billion debt burden.
Australian Government approval looms as the key hurdle to that Chinalco deal, and Australian Trade Minister Simon Crean said a decision on the deal will be made in the national interest and independently of negotiations with China on a free trade deal. In its annual report, Rio Tinto said economic activity is continuing to decline and forward indicators suggest any recovery is unlikely to begin until the second half of the year.
“Prices seem unlikely to be able to stage much of a rebound during 2009,” the miner said, in a report by Bloomberg, tipping Chinese metals demand growing only at a single-digit rate in 2009. That compares with growth of more than 20 per cent in recent years, and won’t be enough to offset a much bigger decline in consumption in other markets, Rio Tinto said.
The miner warned that tough conditions would continue to hit its bottom line and that slower growth in China could mean lower iron ore prices and further weakening in iron ore demand. Despite this gloomy assessment, Chairman Paul Skinner said the company still expects China’s long term growth to continue as a major driver of commodities demand and that, when global economic activity does recover, China could turn around quickly and boost metals markets. “China particularly may surprise the market,” he said. “Just as China decelerated sharply, with a strong impact on metals demand, it will also work powerfully in the upswing.”
Prices set to fall
Iron ore benchmark contract prices are set to fall 30-35 per cent from levels set last year to reflect lower demand amid the global recession, Australian miner Territory Resources Ltd (ASX:TTY) said on Tuesday.
Territory, which is ramping up production to two million tonnes a year at its Frances Creek mine in Australia’s Northern Territory, is this week meeting with key customers in China to finalise long-term sales commitments. Prices will be benchmarked against contract prices for Yandi lump and fines ore, produced at BHP Billiton (NYSE:BHP) (ASX:BHP) and Rio Tinto mines in western Australia’s Pilbara iron ore province.
“We believe prices should settle somewhere between 30 and 35 per cent below the agreed rates last year,” said Alan Cummings, Territory’s general manager finance. BHP and Rio Tinto are locked in negotiations with North Asian customers over prices for ore sold under contract for the year starting April 1. The negotiations are being held against a backdrop of weak demand for raw materials as world steel usage suffers its steepest decline since the end of World War Two.
CLSA Asia-Pacific Markets said in a research note on Tuesday it now expects contract iron ore prices to fall 30 per cent this year, more than the 20 per cent fall it was previously forecasting. The firm said there was little incentive for iron ore producers to settle benchmark prices in a rush as there was an expectation that Chinese demand would normalise as government stimulus measures gained traction.
CLSA noted iron ore spot prices in China had fallen 21 per cent to $67.50 per tonne from $85 per tonne in the past month as stockpiles at Chinese ports increased. “In the near term we believe the risk to iron ore spot prices in China remains to the downside and that Australian iron ore producers will continue to defer settlement until there is increased demand visibility,” the firm told Reuters.
Exports down
Brazil iron ore exports in January were down by 28.6 per cent year-on-year. Brazil exported 17.515 million tonnes of iron ore in January 2009 dropping by 28.6 per cent year-on-year compared to the same period of last year. As per a report in a financial daily, China was the biggest importer of iron ore from Brazil at 6.446 million tones, down by 25.7 per cent year-on-year. Switzerland’s iron ore shipments from Brazil totaled 4.301 million tonnes up by 29 times compared to the same period of last year. Besides, Japan occupied 2.042 million tonnes, Korea 1.413 million tonnes and Germany 906,000 tonnes.
Stable supply
Brazilian iron ore producer Vale (NYSE:RIO, SAO:VALE5) says its iron ore sales to China should be stable in 2009, CEO Roger Agnelli said on Monday. Speaking to Reuters on the sidelines of a conference on Brazil, Agnelli said, “I see only a slight decrease in Chinese production in 2009.”
Southwestern Resources Corp. (TSE:SWG) has reported encouraging geochemical and geological results from its 100 per cent owned, 8,000 hectare Josnitoro project, located 65 kilometres southwest of Abancay in southern Peru. The company is re-evaluating this project, which has resulted in a new interpretation of the geology and exploration potential, with several new, potentially significant, targets identified. Josnitoro comprises two geologically distinct zones. The first is a large east-west zone measuring four by one kilometres which contains multiple copper-gold skarn bodies, related to multi-phase intrusives cutting limestone and quartzite. The second is a quartzite-hosted oxide gold zone.
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March 18th, 2009 at 8:18 am
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