Rio Says There's No Pickup in U.S., Europe Copper Use

LONDON, Oct. 14 -- Rio Tinto Group, the company that owns stakes in the world's two biggest copper mines, said demand for the metal in the U.S. and Europe has yet to recover.

    "The U.S. has bottomed out but we're not seeing a pickup in demand yet. For the next 6 to 12 months we are somewhat cautious on the market," Bret Clayton, chief executive officer of Rio's copper business, said today in an interview in London. "Some expected a pick-up in demand when restocking took place. We haven't seen that yet and we probably don't anticipate that until later this year."

    Rio, the third-largest mining company, reduced spending and worker numbers to try to cut debt after commodity prices tumbled in the second half of 2008 and the world economy slowed. Copper, used in pipes and wires, has since recovered, more than doubling this year on the London Metal Exchange, as customers in China rebuilt stockpiles and demand was spurred by stimulus spending.

    Rio fell 50.5 pence, or 1.7 percent, to close at 2,848 pence in London. The stock has more than doubled this year, beating the Bloomberg Metals & Mining Index's 87 percent gain.

    Some "moderate growth" in demand will start in the U.S. in the fourth quarter, leading to a "fairly balanced market" next year as disruptions constrain supply, Clayton said. The U.S. is the largest copper user after China.

    "We believe 2011 will look more favorable, with the possibility of a small deficit," he said. "Many of the new projects just got put on hold during the economic crisis and you can't just turn those on again immediately. The delay from those projects will create a bit of a gap."

    'Small Deficit'

    Rio, based in London, resumed an expansion at Northparkes mine in Australia, with completion expected within 18 months, and is studying an expansion of the pit at Kennecott Utah Copper to extend the operation there by 11 years to 2030, Clayton said.

    Rio and Canada's Ivanhoe Mines Ltd. last week signed an agreement with the government of Mongolia to develop the $4 billion Oyu Tolgoi copper-gold project, which Rio has called the world's largest deposit of the metals. Rio today increased its stake to 19.7 percent from 9.9 percent. The mine is expected to produce 450,000 metric tons of copper and 330,000 ounces of gold a year when it reaches full output in 2018.

    "We would be happy to increase our exposure to Oyu Tolgoi but how that might happen or if that happens we don't know," Clayton said. "Our preference is to operate and manage those tier 1 assets, but we are open to have minority participation as we do at Escondida."

    Minority Stakes

    Rio owns 30 percent of Chile's Escondida, the largest copper mine in the world, which is operated by BHP Billiton Ltd. It also owns 40 percent of Grasberg in Indonesia, the second- biggest copper mine, which is operated by Freeport-McMoRan Copper & Gold Inc.

    Rio said Aug. 20 its first-half profit tumbled 65 percent after copper, iron ore and aluminum prices declined from the same period in 2008. The company has announced $7 billion of deals, including the sale of Latin American iron ore and potash deposits to Brazil's Vale SA, the disposal of part of its packaging unit to Bemis Co. of the U.S., and 56 percent of its cable unit to private equity group Platinum Equity LLC.

    (Source: Bloomberg)