Rio Tinto is more confident about the demand outlook for its commodities than six months ago as hopes for a US recovery outweigh concerns of contagion from the European debt crisis, chairman Jan du Plessis told shareholders at the agm on Thursday.
Promising signs of a US recovery have improved the global picture in the past six months, he said.
“China is not growing at the same rate as we have seen in recent years, but the rate of growth is still very favourable in comparison to global economic growth,” du Plessis said.
“Over the longer term, we continue to believe the outlook remains strong with demand for many of the products we produce expected to double over the next 20 years,” he added.
Rio Tinto’s ceo Tom Albanese expects growth to come from emerging economies, he said.
“China has become an economic and political force, and is likely to be the next superpower. India’s development is another remarkable story that few were writing about just a decade or two ago. And parts of Africa are now showing that there too, the old clichés are fading and a new order is taking shape,” Albanese said.
But rising costs like soaring gasoline prices and general market volatility were some of the key concerns for the company, he said.
“Increasing costs are an industry-wide problem, particularly in hotspots like here in Queensland, and I am determined to be on the front foot in tackling this challenge, “Albanese said.
“We are not immune from cost pressures,” he said.
In the longer term, deposits are becoming more difficult to find and technically more difficult to develop, he said.
“The trend towards greater resource nationalism is further adding to the risks and the costs of development, increasing the costs of capital and reducing the incentive to invest,” he added.
Rio Tinto continues to focus on the expansion of its Pilbara iron ore project, it said.
“The expansion of our Pilbara iron ore operations is, we believe, the highest quality project of its kind in the sector, which means it is the best value creator for you, our shareholders,” Albanese said.
Rio increased its capacity at Pilbara to 230 million tpy in 2012 from 225 million tpy in 2011.
“Everything is now in place for the expansion to 283 million tpy [by the end of 2013], and potentially to 353 million tpy [by first half of 2015],” Albanese said.
Rio expects the aluminium sector to face challenges for some time on rising Chinese supply and higher costs.
The company has taken an $8.9 million impairment charge for its aluminium operations.
Last year, Rio said it will sell 13 of its aluminium assets as part of its focus on cutting costs.
But the company sees future growth opportunities in exporting bauxite to China from Weipa in the Western Cape region of Australia.
Copper supply continues to be tight leading to strong prices over the last year, Rio said.
“Our copper grades were generally lower last year, but are predicted to recover in the second half of 2012,” Albanese said.
“We are working on studies for growth at tier one copper projects at La Granja in Peru, Kennecott Utah Copper in the US, and Escondida in Chile, as well as bringing the Oyu Tolgoi copper-gold project in Mongolia into production in 2013,” he said.