Jan. 14 (Bloomberg) -- Rio Tinto Group, the world's third- largest mining company, said fourth-quarter iron ore output rose 49 percent because of demand from China, boosting prospects for producers in annual price talks.
Production was 47.2 million metric tons in the three months ended Dec. 31, from 31.8 million tons a year earlier, London- based Rio said today in a statement. Total full-year output was more than 217 million tons, beating the company's forecast.
Sales from Rio's iron ore mines in Australia hit a quarterly and annual record and the company said today there's continuing strong growth in demand. Deutsche Bank AG this week raised its earnings estimate for Rio's 2010 profit by 39 percent after increasing its iron ore contract price forecast.
"With the focus of the market on achieving iron production guidance of 210-215 million metric tons, they beat this metric,"said Chris Weston, an institutional dealer at IG Markets in Melbourne. "It was a solid result from a company that is set to do very well from the iron ore negotiations."
Rio shares gained 2.6 percent to A$79.15 at the 4:10 p.m. Sydney time close on the Australian stock exchange.
"This was another very strong quarter for iron ore production, driven by continuing high demand from China,"Rio Chief Executive Officer Tom Albanese said in the statement. "We are seeing recovery across most of our key commodities, although we continue to be cautious on the state of the global economy going into 2010 as stimulus packages start to wind down."
Surging iron ore prices may reignite tensions between China and producers. In the midst of last year's price talks, Stern Hu, the head of Rio's iron ore business in China, and three colleagues were formally arrested in August for allegedly stealing steel industry secrets. Since then, China's strained relations with some foreign companies has intensified, with U.S. Steel Corp. bringing a dumping case and Google Inc. threatening to pull out of the world's third-largest economy.
Rio and BHP Billiton Ltd. last month agreed to the terms of an iron ore joint venture that will save them at least $10 billion a year. The plan, announced in June, is to combine mines, rail, ports and workforces in Western Australia's Pilbara region. The venture is expected to be completed in the second half of this year, Rio said today.
Iron ore imports by China surged 22 percent in December to the second-highest on record, strengthening the ability of BHP, Rio Tinto and Vale SA to ask for higher prices. China's $586 billion stimulus spending has boosted steel demand from automakers, builders and appliance manufacturers.
Contract prices may rise as much as 50 percent this year, Nomura Holdings Inc. said this week. Iron-ore suppliers hold annual talks with steelmakers to fix benchmark contract prices for the 12 months from April 1, the start of the Japanese financial year.
Rio may report profit of $5.8 billion for 2009, according to Glyn Lawcock, managing director of resources research at UBS AG in Sydney. His recommendations on Rio's Sydney shares have returned 172 percent the past year, the most among 14 analysts, according to Bloomberg data.
Iron ore production was a record 47.5 million tons in the September quarter. UBS AG had forecast output of 46.7 million tons for the December quarter and 216 million tons for the full- year. Rio forecast in October total annual production would be between 210 million and 215 million tons in 2009.
Iron ore was the company's second-biggest earning unit in 2008, accounting for 30 percent, behind the aluminum unit. Aluminum output in the fourth-quarter declined 3 percent from a year ago. Mined copper output advanced 36 percent. Production at Escondida, the world's biggest copper mine, was 30 percent higher than a year ago.
The four-decade-old pricing system was fractured last year after Chinese mills failed to reach agreement with the three largest suppliers, boosting demand for cargoes settled on the cash market.