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China demand to bounce back in 2009: Rio

23-October-08 by AAP

Rio Tinto Ltd, the world's third largest mining company, says a bounce in China's commodity demand next year is inevitable as the effect of the global financial crisis on that country eases.

Turmoil in financial markets and tightening credit facilities have prompted China's demand for a range of commodities to soften, including steel-making raw materials as well as copper and aluminium.

Rio Tinto Ltd chief economist Vivek Tulpule said the Chinese government had started to loosen credit controls - imposed in 2007 amid inflation concerns - and put in place measures to accelerate growth.

"Our work suggests that during `09 we'll see a bounce (in commodity demand). It could happen early, it could happen a bit later, but some level of bounce would appear inevitable," Mr Tulpule told AAP today.

Rio Tinto has revised its previous forecast of 9 per cent GDP growth for China in 2009 to incorporate the view that the entire OECD will probably experience recessionary conditions next year.

"We now think that China's GDP growth is going to be between eight and nine per cent," Mr Tulpule said.

Resource stocks have plunged on the Australian share market over the past few months amid expectations the financial market turmoil will spark a global recession and reduce demand for commodities.

Rio Tinto shares have dropped about 57.8 per cent, while rival BHP Billiton Ltd has lost about 49.9 per cent, since both companies hit 12-month closing high's on May 19 of $156.10 and $49.55, respectively.

"Volatility right now is pretty high but we are probably at a low point for some of these commodities," Mr Tulpule said.

However, Rio Tinto and BHP Billiton have said that the industrialisation and urbanisation of China and other developing nations would continue to drive demand for its products.

"If you look to a longer-run perspective, none of our calculations about China's long-run demand have changed," Mr Tulpule said.

Shares in Rio Tinto, which is the focus of a $US69 billion ($A102.46 billion) takeover bid, were down $12.10, or 15.43 per cent to $66.30 by 1500 AEDT.

BHP Billiton had shed $2.35, or 8.59 per cent to $24.90.