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Rio Tinto Limited ASX:RIO Australian Stock Exchange Ordinary Share
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  3.27 2.86% 117.48 117.14 117.40 118.33 116.14 116.24 1,931,609 07:50:01

Rio Tinto CEO Confident China Can Fix Property Crisis Amid Muted Inflation

27/07/2022 1:20pm

Dow Jones News


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By Rhiannon Hoyle

 

The chief executive of mining group Rio Tinto struck an optimistic tone on the outlook for China, the world's largest commodity buyer, despite recent turmoil in the country's important property market.

Problems in China's housing sector have recently knocked down prices for iron ore, one of the world's most-traded commodities.

But Rio Tinto Chief Executive Jakob Stausholm on Wednesday said subdued inflation in China means policymakers there can focus more on reviving the economy, including the country's troubled property market. Consumer prices rose at a 2.5% annual pace in June, well behind the blistering gains reported in Europe and the U.S.

"They're not fighting inflation the same way as the Western world are right now," said Mr. Stausholm. "They have more means to fix their economy, and that includes sorting out challenges they have faced recently in the property market."

Iron ore's fortunes are entwined with early cycle property activity in China. The sector accounts for almost a third of steel and iron-ore demand in the country, which dominates those commodity markets.

Goldman Sachs on Monday cut its price forecasts for iron ore as it predicted the market would swing to a significant surplus in the second half of the year.

Property is the most challenged and least policy-supported area of China's economy today, the U.S. bank's analysts said in a note.

Goldman Sachs forecast a 67 million metric ton surplus in the iron-ore market in the second half of 2022, wider than an earlier 34 million ton estimate and swinging from a 56 million ton deficit in the first half of the year. The analysts now expect an average price of $85 a ton in the six months through December, down from a previous forecast of $100 a ton.

Spot iron ore on Tuesday traded at roughly $112 a ton, down from more than $140 a ton as recently as May, according to S&P Global Commodity Insights.

Rio Tinto Wednesday reported a 28% fall in first-half net profit, underpinned by weaker iron-ore prices versus the year-earlier period when the commodity traded at record highs on strong Chinese demand.

Pressure has been building in China's housing market since authorities put in place rules to prevent excessive borrowing by the country's developers.

For Rio Tinto, the world's largest iron-ore producer, China is its biggest source of revenue. "The property market is a very, very important part of the Chinese economy-probably more so than for many Western economies," said Mr. Stausholm.

He cautioned there could still be short-term challenges in China, especially because of Covid-19 restrictions.

He also highlighted the potential recession risks in the West amid surging inflation, which he said would also clearly impact the miner which has large operations in Australia as well as the U.S. and Canada. "The short term remains truly unpredictable," he said.

 

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

 

(END) Dow Jones Newswires

July 27, 2022 08:05 ET (12:05 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.

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