Rio Tinto sees China GDP growth at 8-9 pc in 2009

MELBOURNE: Global miner and takeover target Rio Tinto Ltd/plc has cut its outlook for Chinese economic growth in 2009 to 8-9 per cent, but expects commodity prices to bounce back some time next year. In the wake of the global financial crisis, market tumbles and China's moves to cool the economy, Rio Tinto's chief economist, Vivek Tulpule, had to cut his growth forecasts for China, the main driver of soaring demand for commodities. "Now we're saying that we think China will grow between 8 and 9 per cent. That's a reduction in our view," Tulpule said in an interview. "Our view about commodities demand was that it would slow as the Chinese economy slowed, but it slowed faster." The weaker outlook for China was mainly being driven by revised forecasts for a recession across industrialised countries in the OECD as a whole. But Tulpule said the downturn was sowing the seeds for a recovery in commodity prices in 2009. That will be driven by a pick-up in Chinese demand as the government's recent moves to ease credit constraints kick in over the next six months, and as newer, high cost, producers start to cut production. "That combination of factors could give us a bounce in 2009," he said. "Over the course of 2009 we'll see it. But I wouldn't be surprised if we see it in the first half." Global recession fears have sent metals prices into a tailspin, with copper and aluminium prices plummeting to three-year lows this week, and nickel prices slumping to a five-year low. Spot iron ore prices are around half the level that Tulpule predicted in August, and are trading below contract prices the major miners settled with Chinese steelmakers for the year to March 2009. The metals price drop was exacerbated last week after Rio Tinto Chief Executive Tom Albanese said China was pausing for breath and demand was unlikely to pick up until 2009. Rio's share price sank 16 percent on Thursday to A$66.06 as the market reversed a spike from Wednesday driven by a range of rumours about BHP Billiton's $70 billion bid for Rio Tinto. Nevertheless, metals prices remain higher than long-term averages, and Rio Tinto expects that to remain the case. "It's still true to say that prices will be stronger for longer. Why? Because even today, when conditions aren't so good on the demand side, we still have historically high prices," Tulpule said.