Rio hurt by sharp drop in price of iron ore

The world’s second-largest iron ore producer yesterday joined rival diversified miners Anglo-American and Vale, in reporting earnings hit by falling prices and stubbornly high costs.

Rio said underlying profit fell 34 per cent to $5.2bn, as a sharp drop in iron ore prices took its toll despite steady volumes. That was above market expectations of a sharper drop to $4.9bn, however, thanks to a better performance from its aluminium and energy divisions.

Vale, the world’s largest producer of iron ore, last month reported its worst second quarter since 2007, blaming slowing steel demand.

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 iron ore consumer, eases.

China’s economy grew by 7.6 per cent from a year earlier in the second quarter, the slowest pace in three years.

Rio, like its peers, 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 plans to date.

The miner also said it saw signs that stifling cost pressures were starting to ease.