Rio Tinto has now gone all cold on the boom as it continues to fight off BHP Billiton's shrinking takeover offer.
All we need now is similar comments from BHP, which has been an even bigger bull on the commodities boom.
Rio's switch is contained in its third quarter production review, released at 3 pm Wednesday to the ASX.
Within 10 minutes of the release Rio Shares were down 5%, or over $4, at $78.50 and BHP shares were off 4.2%, or $1.30, at $29.70.
The Rio commentary saw the London market belted overnight.
Rio's shares plunged 17% to £23.57, a sizeable discount to rival BHP's hostile all-share offer for the group. BHP, which fell 15%, has offered 3.4 of its shares for each Rio share, but Rio shares closed in London at just 2.57 times the value of BHP's shares.
Anglo American closed 20% lower in London. The FTSE 350 mining index was down 17.3% on the day.
Global markets also fell sharply as recession fears returned to the fore with London, Europe, Asia and the US down sharply. The Dow was down more than 700 points for only the second time ever.
The Standard & Poor's 500 fell 9% in a miserable day's trading as US investors looked at a slump in retail sales last month, lower manufacturing activity and concluded the economy was in recession.
Oil fell to just over $US74 a barrel, copper almost 10% to $US2.16 a pound but gold rose $US8 to finish around $US847 an ounce.
The Australian dollar finished just over 66 US cents.
Rio CEO, Tom Albanese said in his commentary accompanying the production report that China was "pausing for breath" and for a big commodity producer like Rio, that means lower demand and prices in 2009 for its range of products (and for the likes of BHP as well, which has also to contend with falling oil and gas prices).
With these comments triggering a sell off in London overnight, and then the gloomy news from the US, it will be another tough market here today. The futures market was signalling a 7%-plus, 300 point plunge on the ASX200 to close to 4000 points.
Prices for metals like copper are already down and not even the sharp fall in the value of the Aussie dollar can soften the blow. Oil is falling but iron ore and coking coal are still being sold into China, Japan, Korea and other markets at this year's record levels. That will change from April 1, 2009.
Mr Albanese said there won't be a recovery in China until next year as a result.
That means record contracted iron ore and coking and thermal coal prices will fall sharply in the new contract talks due to start next month. BHP and Rio could possibly lose the price premium they screwed out of the Chinese mills in the price talks this year.
And, despite all the doubters, we will need every dollar from the Federal Government's package to keep this economy out of a noticeable slowdown next year, even a recession. It could come in the middle six months of the year
"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," Mr Albanese told shareholders in the statement..
"Furthermore, we expect third quarter economic data to show an exaggerated slowdown, reflecting the postponement of projects during the Olympics.
"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.
"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.
"The long-foreshadowed deceleration in economic activity has resulted in a marked reduction in Chinese commodity demand growth from the overheated levels we saw in 2007.
"But we should expect that investment, construction and therefore commodity demand in a fast growing developing economy like China's will have a cyclical pattern around a strong underlying trend.
"While apparent demand for steel making raw materials, copper and aluminium has slowed, lower prices mean that Chinese producers are facing margin pressure and should be expected to cut their production. For example, it is likely that the vast majority of Chinese aluminium producers are now making operating losses."
His comments come after China released figures on Monday night showing that the trade surplus hit its highest level ever in September.
China's trade surplus hit a record $US29.3 billion last month as exporters defied all the forecasts of falling international demand.
Exports rose 21.5% year-on-year last month compared with 21.1% in August.
In dollar terms, exports in September totalled $US136.4 billion, while imports grew 21.3% to $US107.1 billion, even though the price of oil and many metals has fallen with the slump in global commodity prices.
The rise in exports was despite a 13% fall in the amount steel exported in September.
China is the world's biggest steel producer, but shipments fell to a three month low last month of 6.7 million tonnes from a record 7.68 million in August.
That's still 50% higher than a year earlier, according to official figures.
In a special commentary on China, Mr Albanese had this to say:
There has been a deceleration in Chinese growth, which is expected to fall from nearly 12 per cent 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.
We expect to see Chinese economic data in the third quarter of this year showing an exaggerated economic slowdown because of the 'Olympics effect', with the negative impact falling away 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.
The long-foreshadowed deceleration in economic activity has resulted in a marked reduction in Chinese commodity demand growth from the overheated levels we saw in 2007.
But we should expect that investment, construction and therefore commodity demand in a fast growing developing economy like China's will have a cyclical pattern around a strong underlying trend.
While apparent demand for steel making raw materials, copper and aluminium has slowed, lower prices mean that Chinese producers are facing margin pressure and should be expected to cut their production. For example, it is likely that the vast majority of Chinese aluminium producers are now making operating losses.
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.
Mr Albanese said that with its cost competitive assets:
Resilient margins and strong customer base, Rio Tinto is well placed to weather the current economic weakness. Against the backdrop of the current markets, the Group is taking the opportunity to review the near term spending timelines and project costs of its capital expenditure programme, while preserving the optionality of its high quality growth pipeline overall."
• Record quarterly global production of iron ore, up 17 per cent on the third quarter of 2007.
• Record quarterly iron ore production in Australia of 48 million tonnes (39 million tonnes on an attributable basis), up 20 per cent (up 17 per cent on attributable basis) compared with the third quarter of 2007.
• Rio Tinto Alcan continued to perform well with bauxite production up 93 per cent, alumina up by 222 per cent and aluminium up by 371 per cent, compared with the third quarter of 2007, reflecting the acquisition of Alcan in the fourth quarter of 2007.
On a proforma basis the respective increases for bauxite and alumina were 11 per cent and two per cent while aluminium declined by one per cent, primarily due to temporary cutbacks at Tiwai Point.
• Strong recovery in grades at Kennecott Utah Copper was offset by a decline at Escondida, which experienced operational interruptions. This led to an overall decrease in mined copper by seven per cent compared with the third quarter of 2007.
• Strength in Australian hard coking and thermal coal, with third quarter production up by 40 per cent and eight per cent respectively on the third quarter of 2007.
• Record production for the US coal business was achieved, up 13 per cent on the third quarter of 2007.
• Uranium production increased 13 per cent on the same quarter of 2007
• Continued strong performance from the minerals businesses with borates production up
24 per cent and titanium dioxide feedstocks up 11 per cent on the third quarter of 2007.
On Rio's finances, Mr Albanese said:
"All the previously announced divestment processes are underway, and are continuing. The primary objective continues to be obtaining appropriate value from the assets highlighted for divestment. Acknowledging the reality of the currently challenging financial markets, the Group is reviewing its timeline for the announcement of the first $10 billion of divestments, which was due to be made in 2008.
"The Group's financial position remains sound and its cash flow generation is strong. On 25 June 2008, Rio Tinto announced that it had termed out $5 billion of the Alcan acquisition facility through a bond issuance of fixed interest securities with durations varying from five to twenty years. The details of the rates and maturities were included in the press release.
"Total bonds outstanding for the Group at 30 September 2008 total $9.3 billion, including the $5 billion above. $200 million of this total matures within one year. Rio Tinto elected to extend the term of the Alcan acquisition financing Facility A to October 2009.
"The Group has no current drawings under any of its $2.3 billion bilateral bank facilities."
