Miners rocked by fears over Chinese slowdown

Rio Tinto sent a shock wave through the mining sector and triggered wider concerns about a global recession by warning of a major slowdown in China. The company saying it was now revising its capital spending plans and would miss its end-of-year target of making $10bn (£5.65bn) worth of disposals. Shares in Rio Tinto and other rival stocks fell by up to 9% as the miner said it was cutting back production at some of its aluminium smelters. The moves came as the Aluminium Corporation of China, Chalco, decided to reduce its local output in reaction to a 40% slide in some local prices over the last couple of months. "The Chinese economy is pausing for breath after spectacular GDP growth," said Tom Albanese, the chief executive of Rio Tinto. "Although not immune from the weakness in OECD countries, the China slowdown is largely caused by last year's tightening of Chinese monetary policy to address inflation." He added that third quarter economic data would underline the reduction in demand which was being exaggerated by by the temporary halting of industrial projects during the Olympics. "There will inevitably be an impact on Chinese exports from these factors." The views from the mining group reinforce fears that China - the engine of world industrial growth over the last five years - is beginning to stutter. Some critics say the rulers of the world's most populous nation have presided over an bubble economy that is just waiting to pop. But Rio Tinto believes China's long-term growth pattern can be sustained while the Chinese Academy of Social Sciences has just put out a report arguing the west's financial crisis and world economic slowdown "won't change the (strong) fundamentals of the Chinese economy". Dick Evans, a colleague of Albanese at Rio Tinto, said some growth projects were being put on hold in the aluminium sector while there was going to be production cutbacks at two or three of its high-cost smelters. If prices fall further then we might accelerate that," said Evans, chief executive of the Rio Tinto Alcan business. The company was originally planning to boost aluminium output from 4m tonnes to 7m tonnes but at least some of this has been put on ice. Evans said he had heard that 1m tonnes of production had been shut down in China, around 7% of the nation's total. Chalco, the world's third largest alumina producer, revealed it was shutting in a further 1m tonnes of production at its Shandong plant on top of the 300,000 tonnes already halted. The closure would leave Shandong running at 200,000 tonnes of its 1.5m capacity. Weiqiao Aluminium, the second largest alumina producer in China after Chalco, said it too had closed half of its 4m tonne a year capacity while another local rival, the Lubei Group, said it was also closing a 1m tonne a year capacity facility. Rio Tinto, facing a takeover threat from BHP Billiton, said it had overall performed very well in the third quarter and was well-placed for the future. But it admitted that its disposal programme was being made harder by the decline in commodity prices and uncertainties over the global economy. This also made it prudent to reconsider capital spending plans. Charles Kernot, mining analyst at Evolution Securities, said the Rio Tinto announcements were important. "We take the view, as with the authorities on both sides of the Atlantic, that the forthcoming recession will be severe and see a marked global contraction in commodity demand. The slowdown in significant capital expenditure projects and recognition that it cannot sell US$10bn of non-core assets before the end of this year implies that Rio Tinto agrees with the politicians." BHP warned on Monday that China was slowing down but it said that it had no intention of cutting back any production or capital spending. Meanwhile Rio Tinto, facing a hostile $160bn takeover offer from BHP, announced that it had run up record production levels of iron ore in the third quarter, up 17% year on year, and seen a 40% increase in Australian hard coking coal and a 13% growth in uranium output.