Rio says interest rates have peaked as the mining giant tips improvements in the Chinese economy in 2024
Solid iron ore shipments headline Rio Tinto’s full year production results – but there are fresh troubles in Mongolia, new progress at Winu in WA, and an asset sale to round out the company’s year.
Rio Tinto has flagged a second-half recovery for the Chinese economy, as the company hit the upper end of its iron ore export guidance and shipped its biggest tonnage in five years.
The mining major, led by Jakob Stausholm, released its December quarter production report on Tuesday, saying it believed the global cycle of higher interest rates has peaked, as inflation across the world recedes.
Rio said China’s moves to offset weakness in the country’s troubled property sector were finally improving market confidence in its massive economy.
“Monetary policy in advanced economies remains tight. However, interest rates may now have peaked,” the company said in its quarterly market report.
While iron ore prices have softened over the last week, the steelmaking commodity hit 21 months highs in January of about $US145 a tonne, after a strong finish to 2023 on the back of monetary policy easing in China – which lifted demand despite the country’s weak property sector, Rio Tinto said.
“Resilient infrastructure and manufacturing investment, and an increase in the automotive sector and consumer goods, helped offset the prolonged weakness in the property market. Market confidence increased following strong fiscal easing and improvement in manufacturing and consumption levels,” Rio said.
“Stimulus measures are expected to drive a gradual recovery in 2024, albeit weighted towards the second half, with the real estate sector remaining weak.”
The comments come after Rio hit the upper end of its iron ore export guidance, shipping 331.8 million tonnes of the steelmaking commodity in 2023.
The mining giant maintained its guidance of shipping 323 to 338 million tonnes in 2024, only a slight increase on the previous year.
Rio’s iron ore shipments were up 3 per cent compared to 2022, as the company gets its flagship division back on track.
But the full-year production results also reflect a massive uplift in exports of lower-grade SP10 product, as Rio shipped 47.5 million tonnes of the material through the year, including 12.1 million tonnes of SP10 lump ore and 35.4 million tonnes of fines – a 56 per cent jump on 2022 volumes.
Rio has previously said that it now expects SP10 – which grades 58 to 60 per cent iron ore, below the 62 per cent average of benchmark export quality ore – to make up 13 to 15 per cent of its total exports until the company’s giant Rhodes Ridge project enters production and restores the company’s flagship Pilbara Blend to levels of better than 85 per cent of its total shipment volumes.
SP10 made up 14 per cent of total shipments from Rio’s Pilbara mines in 2023, the company said.
Across the rest of Rio’s major divisions, aluminium output lifted 9 per cent to 3.3 million tonnes for the year, with mined copper output up 2 per cent to 620,000 tonnes as the first copper from the Oyu Tolgoi underground expansion entered the market.
Rio said it was still seeing strong performance at the giant Mongolian copper operation, as the ramp up of the underground development continues.
Rio flagged further issues in its running dispute with the Mongolian government over taxes owed from the mine’s operations, however, saying the country’s tax authority had lodged another $US80m claim for back taxes from the 2019 and 2020 following an audit of the mine’s affairs. Rio said it believed the mine’s operating subsidiary had made all payments required under Mongolian laws, and the investment agreement that covers the giant copper operation.
The Mongolian government lodged a claim for $US321m in back taxes in 2021, with that matter yet to be resolved.
The company said it has also returned to making progress on the development of its Winu copper project in WA, which stalled substantially after the destruction of heritage sites at Juukan Gorge.
Rio also said it had closed a deal to sell a key salt production hub to Leichhardt Industrial Group, in a $375m deal that hands the Andrew Liveris-backed company an entry to the Australian salt market.
Rio confirmed a deal had been done in its December quarter production report, released on Tuesday, saying the company expected the deal to close by the end of the year.
Lake MacLeod is one of three solar salt sites owned by Dampier Salt, and includes a 1.5 million tonne a year salt operation and a 1 million tonne a year gypsum operation.
Rio said it had no plans to sell any other assets within Dampier Salt.
The company said deal completion is conditional on “certain commercial and regulatory conditions being satisfied”.
The sale is likely to receive significant scrutiny from the WA government, given the environmental sensitivity of the massive salt lake that underpins the operation.
Rio operates in the area under a 1967 State Agreement, which covers almost the entire 2000 square kilometres of the lake area, limits the involvement of WA government’s environmental regulators in its management – and could need Parliamentary approval for any transfer to a new operator.
Rio shares closed Monday at $128.32.
