Lower commodity prices wiped US$3.6bn off Rio Tinto’s (LON:RIO) half year earnings, which forecast tough conditions will last for some time in the mining industry.
Prices of iron ore, copper and coal have all slumped close to five year lows, though big increases in production from Rio itself have been partly responsible, particularly in iron ore.
The mining giant said any recovery in the sector would be slow over the next decade and be characterised by low demand growth and a focus on productivity and costs over project development.
“This is the industry's "New Normal", in which producers at the lower end of the cost curve will maintain their competitive advantage, but higher cost producers will be exposed.”
Weak prices meant revenues in the half year to June fell 21% to US$18bn, while profits plunged 71% to US$1.75bn. Underlying earnings dropped 43% to US$2.93bn.
Sam Walsh, chief executive, said Rio would step up cost savings measures to offset the impact of lower prices, with the target for the year now US$1bn, against US$750mln previously.
Cost reductions in the first half helped to mitigate some of the commodity price weakness with underlying margins at 38%, compared with 41 % a year ago.
Rio is also cutting capital expenditure back to US$5.5bn in 2015 and less than US$6bn in 2016, but the interim dividend rose 12% to US$107.5c.
“Post-tax operating cash flows of $4.4bn more than covered our sustaining capital expenditure of $1.2bn and dividend payments of $2.2bn,” said Walsh.
Shares rose 4p to 2,572p.