Appetite in China for Metals is Unsated Prices Likely to Remain High, Rio Says BUSINESS ASIA By Bloomberg

By Tan Hwee Ann

Rio Tinto Group, the world’s third-largest mining company, said China’s demand for metals will likely rise, underpinning high prices for commodities this year.

Mining companies globally have been hampered from expanding capacity to meet Chinese demand by shortages of labor and equipment, Paul Skinner, chairman of the London-based Rio Tinto, said in its annual report filed Monday.

A five-year commodity rally, fueled by China’s economic boom, has led to record profits at Rio Tinto and rival BHP Billiton. Rio expects China’s economic growth to average more than 8 percent a year over the next decade, it said.

“China’s strong, growing demand for metals and minerals, which has been a key driver of market strength, seems set to continue,” Skinner said. “We expect prices in 2007 to continue at levels significantly above the long term trend. Stocks of most products have remained low, resulting in tight markets.”

Rio posted a 43 percent increase in 2006 profit to a record $7.44 billion, as Chinese demand drove up prices of copper and iron ore. The Asian nation is the world’s largest consumer of coal, steel, iron ore, copper, aluminum and zinc.

Shares in Rio Tinto, listed in both Australia and Britain, fell 36 cents, or 0.5 percent, to 74.14 Australian dollars, or $57.91, as Chinese demand drove up prices of copper and iron ore. The Asian nation is the world’s largest consumer of coal, steel, iron ore, copper, aluminum and zinc.

Rio gets 16 percent of its sales from China, whose economy has grown at least 10 percent annually from 2003. Prices of copper jumped last year, helping Rio achieve an average price of $6,746 a ton, 84 percent above the 2005 average, the company said last month.

Cash prices for copper, used in pipes and wires, have averaged $5,754.50 a ton on the London Metal Exchange this year. Iron ore prices will rise 9.5 percent from April to a record.

“Because of previous underinvestment in exploration, the next generation of large, world-class deposits is only now being identified and evaluated,” Leigh Clifford, Rio’s chief executive officer, said in the report. “These deposits are often in remote locations, present new technical challenges and will take some years to come into production.”

Rio agreed last year to invest $303 million in Ivanhoe Mines, a Canadian company that plans to mine copper in Mongolia. Other copper projects Rio has under study include Resolution in the United States, La Granja in Peru, and Pebble in Alaska, Clifford said, calling them “world-class undeveloped copper mineral deposits.”

The Resolution project in Arizona may cost $2.5 billion to develop, Rio said in its report. Rio, which owns 55 percent of the project, said mining is unlikely to start until 2015, “an indication of the long lead times for challenging projects,” Rio said. The study to develop the mine could cost up to $700 million.

The La Granja project will not start production for at least seven years and the Pebble project is “still in its early stages,” the report said.

Clifford said building a new project means the company knows what it will get compared with an acquisition in which “you may find not all the assets are jewels.”

(c) 2007 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.