Rio Tinto Bullish on Commodities
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Falling commodity prices? Market turmoil? A collapsing U.S. economy? We're dealing with all of the above right now, but none of them appear to be of much concern to Rio Tinto Ltd. (RTP).
On Tuesday, the company released a report on commodities by in-house economist Vivek Tulpulé to go along with the its first-half earnings for 2008. Despite all the turmoil and volatility witnessed in commodity markets in recent months, the gist of Mr. Tulpulé's paper is that demand from China and other emerging economies remains very firm and that commodities are poised for another great year in 2009.
He wrote:
The central scenario implies a sixth straight year of strong prices reflecting rapid industrialization and urbanization in the developing world. Such a period of broad strength would be unprecedented in the past one hundred years.
Mr. Tulpulé noted that growth in emerging markets is expected to be slower than this year, but still "buoyant." China is expected to grow 9%, and he said a short-term economic boost is possible as the country gets back to business after the Olympics.
On the supply side, he wrote that production of commodities will be affected by shortages of labour and other key inputs, and that costs will remain high. Lower grades at mature operations and occasional production disruptions are also expected to put pressure on supply, he noted.
Mr. Tulpulé breaks down the markets for four key commodities that Rio Tinto produces: iron ore, copper, aluminum, and thermal coal. His paper is bullish on all four.
He avoids any mention of nickel or zinc, two commodities in which prices have plummeted in the last year. Rio Tinto, to its great fortune, does not have exposure to either one.
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