The Slashes and Sell-Offs of Rio Tinto
By The Daily Reckoning Australia | December 3, 2012 1:07 PM EST
While our political leaders push, shove and bicker like stupid kids in a playground, signs of a weakening economy continue to mount. Yesterday, Rio Tinto told investors it plans to slash $5 billion in costs by 2014. Mining services companies duly suffered more share price falls.
East coast coal mines are in the firing line. Falling prices, a strong Aussie dollar (meaning AUD price falls are even worse) and high labour costs are damaging the profitability of these once powerful profit engines.
Rio might be a 'diversified miner', but it's really all about iron ore. It's other large divisions, coal and aluminium, are increasingly becoming marginal producers, with more mine closures becoming a reality.
The US shale gas revolution is a major culprit. Plentiful gas supplies in the US are serving to weaken demand for coal. As a result, US coal producers are pushing more coal into the export market, competing directly with Australia's once low cost, but now increasingly higher cost, product.
Ironically, Rio sold off its US coal assets in 2010 through the formation of Cloud Peak Energy, and the Australian Financial Review reports that the company has 'stepped up plans to invest in infrastructure to sell more coal to Australia's markets in Asia as costs rise.'
On top of that less than upbeat news from Rio, the Australian Bureau of Statistics reported yesterday that companies have scaled back their capital spending plans to $173 billion, from estimates of $179 billion just three months ago. Now that might not seem like a big deal, but as The Australian reports:
'"It is very rare for companies to cut their investment forecasts at this early stage of the financial year and has only previously occurred in 1991 and 1974," Barclays chief economist Kieran Davies said. "There is still going to be an enormous lift in resource investment, but there has been an unambiguous downgrade."'
Hmmm...1991 and 1974 he says...weren't they the years of nasty recessions?
Of course, Australia is not going to have a recession in 2013. We've got the world's best treasurer at the helm, and fine leaders punching on behind the toilet block, and there are always interest rates cuts. After all, the old zero interest rate ploy has worked a treat in Japan, the US and Britain.
for The Daily Reckoning Australia
Most Popular Slideshows
- In Photos, Typhoon Rammasun Blasts the Philippines
- Typhoon Rammasun Claims 18 Lives in China, Incurs $4.32B Losses (PHOTOS)
- Ellen DeGeneres Caught Cheating with Mutual Friend Before Portia de Rossi’s Rehab – Reports [PHOTOS]
- Malaysia Airlines MH17: Vital Black Boxes Finally Land in Hands of Malaysian Authorities, Rebels Announce Ceasefire (PHOTOS/VIDEOS)
Join the Conversation
- Australian Stock Market Report – Midday July 23, 2014
- Australian Stock Market Report –Midday July 22, 2014
- Major European & U.S. Airlines Cancel Flights to Israel after Rocket Attack on Tel Aviv Airport
- BHP Billiton Goads Abbott Government to Also Repeal Mining Tax Law
- Australian Stock Market Report – Morning July 23, 2014
- Windows Phone 8.1 Update Rollout: 20 Nokia Lumia Phones Eligible and 13 New Features to be Added
- Moto 360 Price Speculations, Key Features, Strategic Release Date, Design: A Watch That is More Than Just Time
- Google Nexus 8 Release Date Soon Along with 2 More HTC Android Tablets – Reports
- Samsung Galaxy Note 4 Apps Leak Online, Five Fresh Features to Expect from the Android Smartphone
- Three New Moto G Successors Spotted in FCC Document Dubbed Moto G2, Moto M and More --Reports
- iPad Air 2 Release Date Will Skip IGZO Panel; To Rollout with Super-Slim iPad Mini Air
- Upcoming iPad Mini 3 Could be 30% Thinner and Likely be Called iPad Mini Air; Apple Q3 Results Show 9% Decrease in iPad Sales