Commodity Online
LONDON: Is China completely immune from the OECD recession? Already, the `Olympics effect’ and slower growth rate at 10 percent due to tight credit policies has impacted demand for several commodities in China.

Among the commodities whose demand has declined include steel making raw materials, copper, aluminium and subsequently their production has been affected. For example, it is likely that the vast majority of Chinese aluminium producers are now making operating losses.

Tom Albanese, Rio Tinto Chief Executive said that “In the near term, the Chinese economy is pausing for breath. China is not completely insulated from an OECD recession and we will see an impact on Chinese exports. However, the near term slowdown of growth is substantially due to tightening of monetary policy introduced by the Chinese government last year in order to tackle inflation.

Furthermore, Rio Tinto expects third quarter economic data to show an exaggerated slowdown, reflecting the postponement of projects during the Olympics.

China Growth
There has been a deceleration in Chinese growth, which is expected to fall from nearly 12% in 2007 to less than 10 per cent this year. The slowdown is a product of tight credit policies in China that were introduced late last year to address inflationary concerns. These are only now being relaxed, according to Rio Tinto

The negative impact of Olympics effect will be fade in later months. Over time, as economy-wide inventories are dissipated, industrial production and commodity demand can be expected to accelerate. Nevertheless, it now seems clear that any bounce in net demand will be delayed until next year.

Over 2009, the export sector is expected to come under increased pressure as OECD demand weakens in the wake of the Western credit crisis. However, Chinese investment is expected to start gaining strength on the back of substantial domestic savings and a shift in government policy toward promoting growth objectives. In this context it is worth recalling that net trade contributes only about 6 per cent to GDP while domestic investment contributes more than 40 per cent, Rio Tinto said in an analysis.

Rio Tinto & China
Chief executive Tom Albanese said: "The long term outlook for Rio Tinto remains positive despite the upheavals in global markets. In the third quarter, our business continued to perform extremely well, breaking yet more production records in iron ore, bauxite, hard coking coal and US coal. Looking further out, Chinese GDP will remain largely driven by the domestic economy and we expect industrialisation and urbanisation to continue apace with strengthening demand across a range of Rio Tinto products”

The Group’s financial position remains sound and its cash flow generation is strong and its production in various mines has performed well in the last quarter, according to a press release.