Rio Tinto refineries take $1.2b hit as new pollution caps bite

Rio Tinto said shareholders would receive an interim dividend of $US1.77 ($2.62) a share for the six months to June 30 – a lower payout than the market was expecting – as underlying earnings fell from $US8.6 billion ($12.7 billion) to $US5.7 billion ($8.4 billion).

Stausholm described the half-year results as robust, “despite softer market conditions”.

“We have a clear pathway to building an even stronger Rio Tinto and continue to gain momentum in our strategy to set the business up for long-term success,” he said.

Iron ore – the raw material processed in steel-making furnaces to churn out molten pig iron – is Rio Tinto’s biggest earner and one of Australia’s most lucrative commodities, raking in export earnings of more than $120 billion in the past financial year alone.

Benchmark iron ore prices remain high by historical standards, trading at $US113 a tonne this week, while costing Rio Tinto less than $US24 a tonne to produce from its Pilbara mines.

However, today’s prices are much lower than the record levels of $US230 a tonne reached in 2021 when an infrastructure-building blitz in China fuelled enormous demand for steel at the same time that drawn-out supply disruptions dragged on iron ore supplies out of Brazil.

Australian iron ore heavyweights Rio Tinto, BHP and Fortescue have faced a softening in commodity prices in the past three months as rising interest rates hit global economic growth, and as weaker-than-expected post-COVID economic recovery in China moderates demand from steel mills. China is by far the world’s biggest steel producer, accounting for almost 60 per cent of global iron ore demand.

Commonwealth Bank analyst Vivek Dhar this week said iron ore prices had tracked between $US100 and $US120 a tonne since late May, after peaking at $US133 in mid-March. But prices were now expected to decline to $US100 a tonne, he said, assuming Beijing did not make any significant policy-support measures in coming weeks.

“Our major concern remains China’s property sector, where conditions are clearly worsening,” he said.

“Combined with our view that policymakers are also unwilling to target low-quality economic growth given the backdrop of elevated local government debt, we think it will be a challenge for China’s steel demand to meaningfully pick up for the remainder of the year.”

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While Rio Tinto derives the bulk of its earnings from iron ore, the Anglo-Australian miner has been accelerating efforts to boost its exposure to other commodities, particularly those standing to benefit from the growing global trends towards decarbonisation. Rio Tinto is seeking to increase its supplies of copper and lithium – two of the natural resources needed in vastly greater volumes in coming years to build and store renewable energy and power millions of electric vehicles.

In the past year, Rio Tinto has finalised a multibillion-dollar deal to buy the shares it did not already own in Toronto-listed Turquoise Hill Resources to lift its exposure to the giant Oyu Tolgoi copper and gold mine in Mongolia. It also sealed a $1.1 billion acquisition of the undeveloped Rincon lithium mine in Argentina.

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