Rio Tinto sees strong demand ahead for iron ore and copper as China’s industrialization keeps ramping up, but aluminum may prove to be another story over the next few years.
In fact, CEO Tom Albanese says that aluminum consumers still have enough of the metal stockpiled to cause him to remain “cautious” — the more so since RIO is the biggest producer of the aluminum in the world, ahead of both Rusal and Alcoa AA.
Until those stockpiles are depleted, the aluminum industry will remain oversupplied. While the situation may be better after 2015, volatility and high production costs in the meantime is driving RIO to price its intermediate alumina products on a shorter-term contract basis.
Shorter-term contracts allow the company to pass on more of its expenses to customers more quickly, capturing efficiencies in the commodities markets that it would otherwise not be able to exploit.
RIO reportedly faces rising costs throughout its business.
On the upside, the company expects its iron ore revenue to grow 50% over the next five years as China’s hunger for steel moves out of the cities and into the hinterland. And by 2012, RIO may be hard pressed to dig enough copper to meet global demand.
Still, the aluminum news may not be encouraging for AA, much less smaller competitors AWC or ACH.
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