Rio hoping for lift in demand for iron ore

The group is predicting a modest pick-up in the Chinese economy later this year that should stimulate demand for iron ore.

The world’s second-largest iron ore producer has joined rival mining majors Anglo-American and Vale in reporting earnings battered by commodity price drops and stubbornly high costs.

Rio said underlying profit fell 34 per cent to $5.2bn (£3.3bn), as a sharp drop in iron ore prices, weakness in aluminium and lower copper volumes took their toll. That was above market expectations of a sharper drop.

Prices for steelmaking ingredient iron ore have tumbled this year from 2011 highs, with benchmark prices touching their lowest in two and a half years last week as demand from China, the world’s largest consumer of the commodity, eases.

Like its peers, Rio is juggling bumper capital expenditure plans with volatile markets and an uncertain outlook.

But while some rivals have begun to signal they could cut back, the miner has stayed firm on its own spending plans for 2012.

Arguably the most China-dependent of the majors given its focus on iron ore, Rio struck a more optimistic note than some rivals, pointing to a likely pick-up in Chinese demand in the fourth quarter as government stimulus measures take effect.