(Updates with closing share price in ninth paragraph.)
Oct. 11 (Bloomberg) -- Rio Tinto Group, the second-largest mining company, said concerns arising from the European debt crisis that have shaken world markets don’t reflect the “real economy” as demand for iron ore and coal remains strong.
“My sense is that the expectations are actually more gloomy than what is taking place on the ground,” Tom Albanese, Rio’s chief executive officer, said today in an interview. “From what I’m seeing, the actual real economy is probably doing better than the financial markets are worrying about.”
An index of six metals on the London Metal Exchange has dropped 18 percent this half on signs economic growth is slowing in the U.S. and as speculation increases that the sovereign debt crisis in Europe is spreading. European Central Bank President Jean-Claude Trichet said today Europe’s debt crisis threatens the region’s financial system, while officials are racing to put together a new plan to end the turmoil.
“The risks and the questions around Greece and the questions around contagion beyond Greece are probably having a further dampening on sentiment,” Albanese said in the interview in Seoul. “I would just hope that the leaders, particularly in Europe, who are dealing immediately with the debt crisis in Greece, recognize that they themselves can influence expectations.”
Albanese said last month commodity markets were “somewhat weaker” than six months earlier in anticipation concerns over the health of developed economies would curb demand. Rio’s order books were full and pricing was strong, he said at the time.
“Since I made those comments in September, we haven’t seen that much of a change in sentiment or our underlying businesses,” he said today. “What we’ve been seeing in our business is that the general economy is going OK, even in the U.S.”
European officials are toiling to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the debt crisis, which has propelled Greece to the brink of default, roiled global markets and fueled speculation that the 17-nation currency might not survive in its current form.
“The crisis has reached a systemic dimension,” Trichet told European lawmakers in Brussels today. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”
Rio advanced 0.4 percent to 3,261.5 pence by the close of London trading. It earlier increased 0.9 percent to A$68 on the Australian stock exchange in Sydney.
The company last month maintained a long-term forecast for demand for copper, aluminum and iron ore to double over 15 to 20 years. Rio has approved spending of $27 billion on expansion and new mines and is studying an extra $35 billion of investment.
Albanese said demand from China, his biggest customer, will be sustained, supporting expansion plans. “What we would hope to see is that as the rest of the world sorts itself out, the Chinese economy basically can continue to moderate,” he said. “It will slow down but it’s going to slow down from a very large size and for us that’s just enough business.”
China is the world’s biggest consumer of metals and largest buyer of iron ore, used in steel. The price of ore for immediate delivery to China has dropped 1.4 percent since July 1.
Rio, the second-biggest exporter of the raw material, generated two-thirds of its earnings last year from iron ore sales. It’s studying expanding output 50 percent by 2015.
“What we’ve seen over the past five years is that China continues to climb a wall of worry,” Albanese said. “It continues to see concerns, but it grows past those concerns.”
--Editors: John Viljoen, Tony Barrett
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