World's second-biggest miner unfazed by China pessimists

[LONDON] The head of the world's second-biggest mining company says he's unfazed by pessimism about China's ability to meet official economic growth forecasts that are critical to the fortunes of the embattled industry.

"There are lot of pundits saying that growth will be slower than the government will be expecting," Sam Walsh, chief executive officer of Rio Tinto Group, said in an interview with Bloomberg Television in Antalya, Turkey on Sunday, referring to China's 7 per cent growth target this year. "Quite frankly, we have conducted our own independent research and analysis and it's indicating that it's pretty close to 7 per cent."

A retreat in prices for industrial metals deepened last week on concerns over demand in China, the world's biggest consumer, after data showed the country's industrial output matching the weakest reading since 2008. Monetary and fiscal easing have yet to spur a rebound with the economy expanding at the slowest pace in a quarter of a century. Bloomberg's monthly gross domestic product tracker remained below the Chinese government's 7 per cent goal in October, with a reading of 6.57 per cent.

"So far, the leaders of the government have shown they can keep their hand on the tiller," Walsh said. "They've got quite frankly far more levers than other economies given the amount of state-owned enterprises, given the fact that they are controlling the banks. There are a lot more levers for them to play to keep the economy moving which is exactly what they are doing." Top leaders have signalled that they won't tolerate a sharp slowdown in coming years. President Xi Jinping said this month that average annual growth should be no less than 6.5 per cent in the next five years to realize the nation's goal to double 2010 GDP and per capita income by 2020.

Government spending surged four times the pace of revenue growth in October, highlighting policymakers' determination to meet this year's growth target as a manufacturing and property investment slowdown weigh on the economy.

"We don't recall Rio Tinto being fully prepared for the rapid growth in Chinese steel production that was seen in the last decade, so it's quite possible they may get it wrong on the other side," analysts at Investec Plc wrote in a report Monday. "Time will tell."

Still, metals demand in China slipped again in October, Goldman Sachs Group Inc. said in a report last week, citing an in-house gauge of consumption in Asia's top economy. The London Metal Exchange index plunged to a six-year low last week as prices for copper, aluminum and zinc fell. Iron ore, the biggest profit driver for Rio, has dropped about a third this year.

Copper fell to a fresh six-year low on Monday, losing as much 1.6 per cent to $4,747.50 a ton. It traded 1.3 per cent lower at $4,764 a ton at 11:49 a.m. local time on the London Metal Exchange. Aluminum also dropped 1.4 per cent while zinc declined 1.3 per cent. Rio Tinto shares, down 24 per cent this year, added 1.3 per cent to 2,272.5 pence.

"Only a major pickup in Chinese demand is likely to be sufficient to balance metals markets such as copper and aluminum," Goldman Sachs analyst Max Layton wrote in a Nov. 11 report. "This is because metals supply generally continues to grow, while Chinese demand does not, so demand has to work hard to catch up." China's economy grew 6.9 per cent in the three months through September from a year earlier, the slowest quarterly increase since the start of 2009. For the full year, expansion is set to be the slowest since 1990.

"It's a very volatile world and markets, investors and analysts are responding to things that are happening on a sort of daily basis," Walsh said. "You've really got to step back from that to look at what are the long-term trends and what's actually happening with commodities. I'd suggest that people should stop looking at what's happening on a daily basis and focus on the overarching trends."

BLOOMBERG