Rio Tinto forecast that China’s slowing economy will soon be zooming again as the FTSE 100 mining giant put a brave face on a 34% drop in first-half profits.
Like those of its rival Xstrata yesterday, Rio’s profits were hit by rising labour and equipment costs while economic weakness in Europe, the US and China sent the price of commodities such as iron ore and copper tumbling.
As a result, underlying earnings fell to $5.2 billion (£3.3 billion from $7.7 billion in the six months to June 30 as sales dropped by 13% to $25.3 billion.
However, the profits were better than expected, helping Rio’s shares to put on 28.5p to 3,159.0p. Rio hiked its dividend by 34% to 72.5 cents and declared that the slowdown in China, the world’s biggest metals buyer and key determinant of global commodity prices and demand , was ending.
“We’ve been signalling for some time that markets would remain volatile and we have seen challenging conditions in the first half,” conceded chief executive Tom Albanese, who waived his bonus last year after the group was forced to take a giant writedown on its Alcan aluminium business.
“Although sentiment remains negative in Europe and the US recovery is still fragile… We expect to see signs of improvements in Chinese economic activity by the end of the year, with growth picking up more strongly as government stimulus measures announced in the second quarter begin to flow through to infrastructure investment,” he added.
