Rio Tinto Group needs to cut costs to remain competitive amid “very tough times” for its aluminum, coal and uranium businesses, chief executive officer Sam Walsh said.
China’s economy dipped in the first three months of the year and the world economy remains volatile, the head of the London-based firm said yesterday in an interview with Nine Entertainment Co television.
Waning global demand for commodities is prompting Rio and rival miners of commodities from gold to coal to trim assets and staff as they are squeezed by unfavorable foreign exchange rates, falling prices and rising costs.
Iron ore, which accounts for 91 percent of Rio Tinto’s net income, fell 4.5 percent last week to its lowest level this year.
Cost cutting “is not easy, this is a process that is very, very tough, but we need to get on top of it because we need to have a business that will be competitive,” Walsh said.
The company is cutting 217 jobs at its London head office as part of US$5 billion in planned cost reductions, and will trim this year’s capital spending to US$13 billion from US$17 billion last year.
In February Rio Tinto announced its first full-year loss after taking a US$14 billion writedown on the value of its aluminum and coal assets, including a US$38 billion cash deal for Alcan Inc in 2007 that made it the world’s second-largest producer of aluminum.
The price of copper, seen as a bellwether commodity due to its range of industrial uses, gyrated last week as downbeat industrial data from China contrasted with better-than-expected US job growth. Copper for delivery in three months at the London Metal Exchange hit an 18-month low on Wednesday before recording its biggest one-day jump over a similar period on Friday.
“We’re in for more volatile times,” Walsh said yesterday. “The world is an uncertain place.”
He said Rio was focused on raising funds by selling assets to maintain its “single-A” credit rating, currently on negative watch from Standard & Poor’s.
Despite a slowdown in China and debt strains in Europe and the US weighing on mining companies in the past 12 months, Walsh was upbeat about demand for Rio’s key product iron ore.
“First quarter, we saw a dip in China, [but] we’ve seen increased commitment to infrastructure and an easing of credit and we expect that will flow through to steel production and of course iron ore demand,” he said.
He added that as the world’s lowest cost iron ore producer “we’re doing OK.”