Rio Turns China Optimist, Sees Copper’s ‘Twilight Zone’ Exit

(Bloomberg) -- Rio Tinto Group, the world’s second-largest mining company, is becoming more optimistic on the outlook for commodities demand in China after recent data pointed to a pickup in the construction market.

“The drop that we had experienced for the last two or three years in China seems to have plateaued,” Chief Executive Officer Jean-Sebastien Jacques said in an interview with Bloomberg Television in New York on Monday. “We are becoming much more what I would describe as cautiously optimistic in relation to China.”

The $57 billion company is looking to rebound from its worst profit since 2004 as a slowdown in China hurt commodity prices, eroding earnings and forcing Rio to trim its dividend payment. The country makes up about half of the world’s raw-materials demand and also accounts for half of Rio’s revenues. Ivan Glasenberg, who heads rival Glencore Plc, last month said the Chinese market looks “pretty good” in the long term.

Jacques, who took over the CEO role in July, also attributed his more buoyant outlook on China to meetings with government officials, suppliers and customers in the country two weeks ago. Chinese home prices rose the most in more than six years last month, National Bureau of Statistics data showed Monday.

Rio rose 1.3 percent to A$47.17 in Sydney trading at 11:08 a.m., extending its advance this year to 5.5 percent.

Chinese Data

Chinese figures on factory output, investment and retail sales all exceeded analyst estimates in August amid a boost from the property market. Fixed-asset investment increased 8.1 percent and property development investment rose 5.4 percent in the first eight months of the year.

“We can see an inflection point and we are going to make the most of it,” Jacques said.

Commodity prices will still remain volatile in the short term as Chinese demand is curbed by seasonal effects, he said, adding that he sees higher prices in the medium-to-longer term.

“It will vary from one commodity to the other,” he said. “We believe that copper will be the first one to come out of this twilight zone.”

Copper has risen 1.5 percent this year to Monday, lagging bigger gains made by other commodities such as iron ore, zinc, nickel and coal. China, the world’s top producer of refined copper, boosted output of the metal to the highest in at least six months in August as domestic smelters expanded capacity amid favorable margins.

Jacques said in June he won’t focus on acquisitions and that growth will instead center on developing existing projects and cutting costs. Rio’s most significant projects include the $6 billion expansion of its giant Oyu Tolgoi copper mine in Mongolia and the $1.9 billion Amrun bauxite operation in Australia.

--With assistance from David Stringer To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net, Jonathan Ferro in London at jferro10@bloomberg.net. To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin, Keith Gosman