dow falls another 200 but same game ., page-2

BHP + RIO fall >6% each in New York

Former Rio Tinto economist warns of too much optimism
Article from: Herald Sun

Felicity Williams and Cameron England with agencies

November 20, 2007 12:00am

A LEADING mining economist yesterday warned that the Chinese growth story was being viewed through "rose-coloured glasses".

Professor Phillip Crowson -- a former Rio Tinto chief economist -- said extra capacity in the mining sector should restore market balance within three years.

And China's demand for raw materials could wane after next year's Beijing Olympic Games as social and inflationary pressures curbed investment.

"There's a widespread perception, or expectation, that Chinese demand for steel and other materials must continue to grow rapidly as China builds up its infrastructure," Professor Crowson told the Australian Academy of Technological Sciences and Engineering's 2007 Symposium in Perth.

"China is grappling with rising inflation and social pressures and it may be unable to sustain the rates of investment and economic growth of recent years without at least pausing for breath once the Beijing Olympics are over."

Professor Crowson, who retired from Rio in 1997, said miners were also developing extra capacity, which would relieve recent pressure on prices and take them closer to the marginal costs of supply.

His cautionary statements came as BHP Billiton chief executive Marius Kloppers paid a one-day visit to Tokyo to persuade Japanese customers of the merits of his $150 billion tilt for Rio.

The head of Japan's Iron and Steel Federation is against the proposed merger, saying it would impede the market's pricing mechanism.

"The merger will be harmful to the fair trade of iron ore and high-grade coking coal," the president of JFE's steel division, Hajime Bada, told Bloomberg.

Mr Kloppers arrives in Seoul today and will spend Wednesday in Shanghai and Thursday in Beijing.

RIO chief executive Tom Albanese is in London preparing for next Monday's investor presentation about the BHP bid and Rio's bedding down of its US$38 billion acquisition of Alcan.

Professor Crowson's assertions contradict the so-called "super cycle" theory, which contends that the traditional cycle of boom and bust in the resources sector does not apply to this upswing because of the economic strength of China and other emerging economies.

Elsewhere, CommSec chief economist Craig James also warned yesterday that "every boom must end".

"While the ramp-up phase of Chinese industrialisation still has further to go, it is unrealistic to expect Australian-listed iron ore companies to replicate the stellar gains over the past three years," Mr James said in a report.

"Chinese authorities have accelerated efforts to slow the economy but only limited success has so far been achieved."

Rio rose $4.79, or nearly 4 per cent, to $136. BHP rose 44c, or just over 1 per cent, to $41.59.

UBS analyst Glyn Lawcock said last Friday that BHP's bid for Rio shows confidence in the commodity cycle.

"While we believe it is a logical thing to happen given synergies and economies of scale, it also shows confidence in the longevity of the commodity cycle," Mr Lawcock said in a note to investors.

Speaking at the same forum as Prof Crowson, Rio's group chief scientist Robin Batterham predicted that the China-led resources boom would last for 15 to 30 years in the absence of political upheaval or natural disaster.

In other developments, Rio is in final talks with state-owned Abu Dhabi Basic Industries Corp to develop a $US5 billion aluminium smelter in the United Arab Emirates.