Rio Tinto, the Anglo-Australian mining giant, warned yesterday that it faced a "testing time" for up to a year due to tough market conditions. The caution came despite record earnings at Rio for the first half of 2001.
Sir Robert Wilson, chairman of Rio, said the deteriorating economic outlook would challenge the group.
He said: "We see little to encourage optimism about metals demand in the US during the rest of this year and probably, the first half of 2002." He added that due to "relatively soft markets in Europe and Japan, we see moderate weakness across most of our businesses."
Despite this subdued outlook, Rio said it could point to strong first-half growth and diversity of output which should protect it from the worst excesses of a slump in demand in the mining sector.
One analyst said: "Rio is in a stronger position than many of its rivals to survive a rough time, because it does coal and iron as well as other metals. It also now has number of big acquisitions under its belt which should benefit it."
Pre-tax profits in the six months to 30 June increased by 19 per cent to $1.3bn (£909m) up from $1.1bn, as the effects of the slowdown in the US and other markets on turnover were offset by strong demand for iron ore and coal.
The group also benefited from the decline of the Australian dollar against the US dollar, which helped ease the effects of weak prices.
Iron ore profits rose by 62 per cent to $229m, following a 4 per cent rise in the metal's price. This division accounted for 27 per cent of group profits in the first half.
Leigh Clifford, the chief executive of Rio, said the company had only benefited in the last quarter from the price increases of iron ore and coal but would continue to do so until March of next year, when prices will be renegotiated.
Mr Clifford said: "Demand for coal was particularly strong in California due to its energy problems and iron ore demand in Asia reached near-record levels, especially in China where consumption is growing but also domestic poorer quality iron is being replaced."
Rio's aggressive acquisition programme, which cost $4bn in 2000, added $35m to earnings. However, its largest takeover of rival North has yet to make a substantial positive impact on Rio's balance sheet.
Rio shares, which are also listed in Australia, rose 15p to 1195p.Reuse content