MARKET REPORT: Miner Rio Tinto warns that it is facing ‘considerable’ headwinds amid labour shortages and downturn in global economy
Miner Rio Tinto warned yesterday that it was facing ‘considerable’ headwinds amid labour shortages and a downturn in the global economy.
The FTSE 100 firm noted demand from China, its biggest market and a major importer of raw materials, had ‘troughed’ in May as lockdowns hit output.
While demand recovered last month, Rio warned it still faced ‘uncertainties’ given the potential for fresh outbreaks of the virus.
Digging deep: Rio Tinto noted demand from China, its biggest market and a major importer of raw materials, had ‘troughed’ in May as lockdowns hit output
Commodity prices had also declined in the second quarter amid what the firm said were ‘growing recession fears and a decline in consumer confidence’.
It added disruptions to trade, food protectionism and a focus on securing energy were continuing to put pressure on supply chains, which it concluded would need to be ‘significantly eased’ before inflation pressures subsided.
Meanwhile, shipments from the Pilbara iron ore mine in Australia fell 2 per cent to 151.4m tonnes in the first half of the year due to a shortage of skilled labour, outbreaks of Covid, project delays and ‘significantly higher’ rainfall in May.
It is facing higher levels of unplanned absences due to the virus, amid a spike in cases.
Shares initially slumped following the bleak outlook but closed 0.3 per cent, or 12p, higher at 4579p
The FTSE 100 regained some lost ground, rising 1.7 per cent, or 119.2 points, to 7159.01 while the FTSE 250 climbed 1.9 per cent, or 353.14 points, to 18,833.80.
While the market was set to end the week in the green, wider negative sentiment persists amid inflation, higher interest rates and disruption to food and energy supplies due to war in Ukraine. ‘Those that thought the risk of recession has been priced into markets have been proved wrong, with reaction showing there’s still room for the market to be shaken,’ said Hargreaves Lansdown analyst Sophie Lund-Yates.
Traders also had an eye on the turmoil in Europe following the shock resignation of Italian prime minister Mario Draghi. Among the blue-chip risers were tobacco and pharma stocks as investors sought generous dividend payers to protect their cash.
BAT added 3.2 per cent, or 106p, to 3471.5p while Imperial Brands gained 2.9 per cent, or 52p, to 1857p. Pharma firms GlaxoSmithKline climbed 2.3 per cent, or 39.2p, to 1719.2p and AstraZeneca gained 3.1 per cent, or 334p, to 11,110p.
Shares in Shell rose 2.8 per cent, or 53.2p, to 1989.6p after a target price hike to 3000p from 2850p from JP Morgan. Analysts said they think a recent sell-off in energy stocks was ‘overdone’ and fundamentals of the market were ‘robust.’ The bank raised its target for rival BP to 530p from 500p, lifting it 2.5 per cent, or 9.15p, to 373.1p. JP Morgan was less optimistic about the insurance sector, downgrading Admiral to ‘underweight’ from ‘neutral’ and cutting its target price to 1750p from 3000p. The stock fell 1.5 per cent, or 29.5p, to 1904p.
Rival Direct Line was downgraded to ‘neutral’ from ‘overweight’ and had its target price cut to 240p from 315p. But shares rose 3.6 per cent, or 7.6p, to 216.4p. Conglomerate DCC ticked up 1.7 per cent, or 88p, to 5196p after it reported profits in the three months to June 30 ‘well ahead’ of the prior year. Meanwhile, on AIM, miner Ironveld headed for a showdown with its biggest shareholder Align Research after the investor called a general meeting to remove chairman Giles Clarke and chief executive Martin Eales.
Ironveld accused Richard Jennings, director of Align, of subjecting its board to ‘coercion, threats and bullying’, saying his proposals were ‘vexatious’ and ‘self-serving’, and recommending investors vote against his plans on August 12.
Ironveld was flat at 0.36p.