RIO Rio Tinto Plc

   By Rhiannon Hoyle 
 

SYDNEY--Rio Tinto PLC's shipments of iron ore have surged, although the mining giant is dialing back production of some niche commodities such as diamonds and salt amid broad-based weakness in commodity markets.

Mining companies around the world have been put on the back foot by slumping prices for natural resources from gemstones to copper and coal thanks to ample global supplies and slowing economic growth. In some sectors, companies have pared output in the hope markets would rebalance, while in others miners have raced to cut costs with the aim of riding out the downturn.

On Friday, Rio Tinto said it has decided "to pause final product processing in the fourth quarter at Argyle in light of current market conditions."

Rio Tinto's Argyle operation in the remote East Kimberley region of Western Australia is one of the world's largest diamond mines and the biggest supply of natural-colored pink and red diamonds.

The miner now expects to produce 18 million carats of diamonds this year, from a prior estimate of 20 million.

It has also pared back output of salt, a commodity used heavily by the chemical industry and also sold to food manufacturers. Rio Tinto is one of the world's biggest suppliers in that market too. "Salt production in the first nine months of 2015 was lower than the same period of 2014 as a result of weaker demand," the company said, without elaborating.

In small commodity markets, dominant producers tend to be quicker to adjust output in line with demand. It is the same strategy adopted by companies such as Iluka Resources Ltd., a major producer in the niche mineral sands industry, which in recent years curbed output of those raw materials used in items such as plastics and ceramics as demand tumbled.

Large global miners including Glencore PLC have cut their own production of commodities from zinc to copper in recent weeks due to oversupply and weak prices in those markets.

Australia's Macquarie Group said Rio's production of commodities such as diamonds and salt was well below its expectations. "Rio has reacted to weaker demand for some of these products," it said in a note.

It isn't a tack Rio Tinto has taken in iron ore, which accounts for the majority of its earnings and where it has drawn ire from some smaller rivals and politicians who say the miner and some of its peers are devastating the once-thriving industry by flooding the market.

The Anglo-Australian miner reported global iron-ore shipments of 91.3 million metric tons for the three months through September, up 12% on the quarter immediately prior and 17% higher than the same period a year ago.

Rio Tinto, the world's second-largest exporter of iron ore, has been expanding its own network of mines and infrastructure in Australia's remote, iron-rich Pilbara region in recent years, despite a downturn in market prices. The company expects to ship 340 million tons of the steelmaking commodity this year from its operations in Australia and Canada, up from 303 million tons in 2014.

It has repeatedly defended its strategy to keep increasing production, first outlined when prices were booming on China's breakneck growth. Rio's iron-ore chief executive, Andrew Harding, has argued the miner is operating in "a competitive, international marketplace" and that other miners would increase their own production if his unit was to curb output.

Iron-ore prices have meanwhile tumbled 60% since the start of last year due to ample supplies and China's economic slowdown. Analysts have been forecasting a further fall in the iron-ore price on the expectation Asia's appetite for the commodity won't be enough to soak up rising supplies, including from billionaire Gina Rinehart's new 55 million-ton-a-year Roy Hill mine in the Pilbara, which is expected to start shipping ore in the next few weeks.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

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(END) Dow Jones Newswires

October 15, 2015 19:56 ET (23:56 GMT)

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