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‘Tough’ Energy, Aluminum Units Need Cost Cutting

May 9, 2013

May 5 (Bloomberg) -- Rio Tinto Group needs to cut costs to remain competitive amid ‘very tough times’ for its aluminum, coal and uranium businesses, Chief Executive Officer Sam Walsh said.

China’s economy dipped in the first three months of the year and the world economy remains volatile, the head of the London-based company said today in an interview with Nine Entertainment Co. television.

Waning global demand for commodities is prompting Rio and rival miners of commodities from gold to coal to trim assets and staff as they are squeezed by unfavorable foreign exchange rates, falling prices and rising costs. Iron ore, which accounts for 91 percent of Rio Tinto’s net income, fell 4.5 percent last week to its lowest level this year.

Cost cutting "is not easy, this is a process that is very, very tough, but we need to get on top of it because we need to have a business that will be competitive," Walsh said. "When I look at both our energy and our aluminum business, they’re going through very tough times."

The company is cutting 217 jobs at its London head office as part of $5 billion in planned cost reductions, and will trim 2013 capital spending to $13 billion from $17 billion last year.

In February Rio Tinto announced its first full-year loss after taking a $14 billion writedown on the value of its aluminum and coal assets, including a $38 billion cash deal for Alcan Inc. in 2007 that made it the world’s second-largest producer of aluminum.

The price of copper, seen as a bellwether commodity due to its range of industrial uses, gyrated last week as downbeat industrial data from China contrasted with better-than-expected U.S. job growth. Copper for delivery in three months at the London Metal Exchange hit an 18-month low May 1 before recording its biggest one-day jump over a similar period May 3.

"We’re in for more volatile times," Walsh said today. "The world is an uncertain place."

 

--Editors: Jim McDonald, Neil Western

 

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

 

To contact the editor responsible for this story: Stanley James at sjames8@bloomberg.net

 

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