By Melanie Burton and Navya Mittal
MELBOURNE Rio Tinto flagged concerns about a global economic slowdown on Wednesday as it logged a raft of production issues across its operations but said its iron ore production should be at the upper end of its expectations for the year.
Prices of iron ore, from which Rio Tinto derives around 70% of its profits, eased over the second quarter on concerns over China's debt-ridden property sector, but could improve after Beijing on Tuesday pledged to roll out policies to boost growth.
"China's economic recovery has fallen short of initial market expectations, as the property market downturn continues to weigh on the economy and consumers remain cautious despite monetary policy easing," Rio Tinto said in its quarterly report.
"Manufacturing data in advanced economies showed a further slowdown and recessionary risks remain."
The Anglo Australian miner recorded a small miss on its second-quarter iron ore shipments on Wednesday, hurt by a train derailment during the quarter, but said it was on track for full-year shipments in the upper half of its forecast range of 320 million to 335 million metric tons.
"It's good to see solid iron ore production expectations for the full year, but on the margin it's probably slightly disappointing given other production downgrades," said Glyn Lawcock of Barrenjoey in Sydney, adding that Rio's $900 million increase in working capital could impact shareholder returns.
The world's biggest iron ore producer shipped 79.1 million metric tons of the steel-making ingredient from its Pilbara operations in the three months ended June 30, down slightly from a year earlier and short of an estimate of 81 million metric tons compiled by Visible Alpha.
Rio downgraded its expectations for refined copper production, alumina production, and output at its Canadian iron ore operations and warned of rising costs.
"Production downgrades during the quarter highlight that we still have much more to do," Rio Tinto Chief Executive Jakob Stausholm said in the report.
Rio cut its refined copper guidance by about 10% to 160,000 to 190,000 metric tons and raised its cost guidance due to a smelter rebuild at its Kennecott operations in Utah that has also been delayed by a month.
Wildfires in Northern Quebec impacted Canadian iron ore production, it said.
Meanwhile, Rio is reviewing the $140 million estimate and development timeline for its Rincon lithium project in Argentina due to rising costs. Rio will report its first-half profit on July 26.
(Reporting Melanie Burton in Melbourne, and Navya Mittal and Rishav Chatterjee in Bengaluru; Editing by Shounak Dasgupta and Sonali Paul)
