Investor's notebook
Rio Tinto predicts post-games boom
By Rebecca Bream and Chris Flood
Published: August 25 2008 23:57 | Last updated:
August 25 2008 23:57
A surge in
demand from China
could cause a bounce in commodities prices as restrictions on industrial
activity around Beijing
are eased after the Olympics.
Vivek Tulpule,
chief economist of the mining group Rio Tinto, which
is due to announce half-year results on Tuesday, said the region affected by
the restrictions, which were introduced to try to improve air quality,
contributes more than a quarter of China��s gross
domestic product.
��The Olympics
have acc�entuated the usual summer slowdown in commodities demand,�� said Mr Tulpule
in an interview with the Financial Times. ��When activity is allowed to start
around �Beijing,
there will be a post-Olympics jump.��
Rio Tinto has rejected a takeover offer from rival BHP Billiton and while awaiting clarification from
European regulators over whether a bid can proceed, both companies have stepped
up efforts to highlight the long-term value of their businesses.
Investors in
commodity markets have been struggling to assess how China��s
economy will perform after the Olympics, as the country is believed to have
built up substantial stocks of crude oil to avoid fuel shortages during the
games.
China is the
world��s biggest consumer of commodities such as
copper and iron ore,
and is Rio��s
biggest customer. Mr Tulpule
expects Chinese GDP growth to moderate from 10 per cent this year to 9 per cent
in 2009, but says domestic consumption and investment will remain resilient,
even if export growth slows.
He said that
many of the less developed, highly populated provinces in Chian��s
interior, such as Shaanxi and Jiangxi,
were showing high rates of fixed asset investment, increasing at above 35 per
cent in the first half of the year. This is taking the form of investment in
projects such as roads and airports and is part of the ur�banisation
of these regions.
Most of these
provinces consume significantly less steel than Shanghai or Beijing
on a per capita basis. Mr Tulpule
says that if steel consumption in Henan
province, with a population of 98m, were to move towards Japanese levels,
demand would rise by 41m tonnes, the equivalent of Germany��s annual steel
consumption.
He predicts
that strong demand from China
and other emerging markets will make up for weaker demand for commodities in
the developed world. ��Despite the panic about falling metals prices, I am
seeing very strong markets for 2009.��
Mr Tulpule
explained why Rio
believes the six-year metals bull market could last for another decade. The
supply of commodities is likely to be tighter than the market expects, said Mr Tulpule. A shortage of skilled
workers and specialist mining equipment means that existing mining operations
often face difficulty in increasing output, and new mines take longer and cost
more to build. Supply will also continue to be disrupted by strikes and power
shortages, such as the blackouts that affected South Africa
and China
this year.
Although zinc
and nickel prices have fallen, both were still higher than their pre-2005 levels, and copper and aluminium
markets were still going strong.
Copyright The Financial Times
Limited 2008
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