MF commodity seminar FINAL

Outlook for commodity markets

Neal BrewsterRio Tinto Economics Department

MF Global Seminar

15 October 2009

15 October 2009 MF Global Conference 2

This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (“Rio Tinto”) and consisting of the slides for a presentation

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Forward-Looking Statements

This presentation includes forward-looking statements. All statements other than statements of historical facts included in this presentation,

including, without limitation, those regarding Rio Tinto’s financial position, business strategy, plans and objectives of management for future

operations (including development plans and objectives relating to Rio Tinto’s products, production forecasts and reserve and resource

positions), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other

factors which may cause the actual results, performance or achievements of Rio Tinto, or industry results, to be materially different from

any future results, performance or achievements expressed or implied by such forward-looking statements.

Such forward-looking statements are based on numerous assumptions regarding Rio Tinto’s present and future business strategies and

the environment in which Rio Tinto will operate in the future. Among the important factors that could cause Rio Tinto’s actual results,

performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of actual

production during any period, levels of demand and market prices, the ability to produce and transport products profitably, the impact of

foreign currency exchange rates on market prices and operating costs, operational problems, political uncertainty and economic conditions

in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or regulation

and such other risk factors identified in Rio Tinto's most recent Annual Report on Form 20-F filed with the United States Securities and

Exchange Commission (the "SEC") or Form 6-Ks furnished to the SEC. Forward-looking statements should, therefore, be construed in light

of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only

as of the date of this presentation.

Nothing in this presentation should be interpreted to mean that future earnings per share of Rio Tinto plc or Rio Tinto Limited will

necessarily match or exceed its historical published earnings per share.

Cautionary Statement


-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Global financial crisis has been the biggest shock to the world economy since the Second World War

The Great Depression

WW2

Note: Data prior to 1950 excludes Africa, Asia and Former Soviet UnionSource: IMF, Rio Tinto

4.8%

2.5%3.3%

Clash of ideologies

Post War OECD Growth

Emergence of Developing Countries

Maturing OECD

Growth in global GDP (percent a year on purchasing power parity basis)

Financial crisis

Oil price shocks


0

10

20

30

40

50

60

1990 2000 2008

Copper

Aluminium

Traded iron ore

-20

-15

-10

-5

0

5

10

15

75 80 85 90 95 00 05

In a “metals weighted” world the downturn is comparable to the early 1980’s and “dot-com” downturns

Growth in industrial production (percent a year)

OECD

Global, weighted by share of metals consumption(1)

Source: IMF, WBMS, CRU, Brook Hunt, Rio Tinto

China’s share of world consumption (percent)


We are now seeing a cyclical upturn in the developed world but underlying recovery may not be strong

20

25

30

35

40

45

50

55

60

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

US

JapanEurozone

Source: ISM Factory (US), Nomura JM (Japan), Markit (Eurozone)

Purchasing manager indicators suggest recovery …

• Release of ‘pent up’ demand, government stimulus and end to destocking is driving current ‘normalisation’ in demand

• Excess capacity is still holding back investment and producers are not restocking

• Structural fiscal deficits will eventually need rebalancing

• Western consumers unlikely to go back to previous levels of borrowing

.. but a number of ‘headwinds’


0

2

4

6

8

10

12

14

16

18

20

Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 1020

25

30

35

40

45

50

55

60

65

percent yoy, index

Rapid pick up in Chinese economic activity

Chinese industrial production and Purchasing Managers Index

Industrial production* (LHS)

PMI** (RHS)

This may not matter for commodities if the strong Chinese recovery continues; but a longer term shift in the balance of its growth is required

Source: Reuters Ecowin, Consensus Economics

* 3 month moving average** NBS series. Forward 1 month

Chinese GDP growth

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009f 2010f

percent yoy


Production Volume Index

Inland Chinese provinces have been the focus of Chinese infrastructure spending

Acceleration in investment growth in China

Increase in fixed asset investment Jan-Aug 2009

Per cent yoy (bars denote relative growth)

Source: Chinese National Bureau of Statistics

Urban fixed asset investment

15

20

25

30

35

40

45

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

percent yoy, 3 month moving average


Surge in Chinese imports during 2009 have been the driving force behind commodity markets offsetting fall in demand in other regions

0

10

20

30

40

50

60

70

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Source: Chinese trade statistics

Iron ore Aluminum

0

100

200

300

400

500

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Copper

Chinese net unwrought copper imports

thousand tonnes a month

Chinese iron ore imports

million tonnes a month

-300

-200

-100

0

100

200

300

400

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Chinese net unwrought aluminium imports

thousand tonnes a month


0

50

100

150

200

250

300

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Spot iron ore (62% Fe, fob)AluminiumCopperGoldThermal coal (NEWC)

9

Daily spot price index (2 October 2009 = 100)

Minus 60-70%

Plus 40-120%

After a record decline in 2008H2 commodity prices have staged a strong recovery

Source: Metal Bulletin, Reuters Ecowin

US dollar has declined 11%


0.5

0.8

1.0

1.3

1.5

1.8

2.0

-12 -8 -4 0 4 8 12 16 20 24

Lag from economic trough (quarters)

Current metals price cycle has been much more severe than in previous periods but prices have risen more quickly off lows

Aluminium price as ratio of 5 year trailing average(2)

(1) Average of cycles centred around 1978, 1982, 1992 and 2001 (2) Real termsSource: LME, Rio Tinto

Copper price as ratio of 5 year trailing average(2)

0.5

1.0

1.5

2.0

2.5

3.0

-12 -8 -4 0 4 8 12 16 20 24

Lag from economic trough (quarters)

Average of previous cycles(1)

Current cycle

Average of previous cycles(1)

Current cycle


0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Jan-90 Jan-95 Jan-00 Jan-05

Aluminium: Prices in Q1 reflected excessive risk but large stock overhangs have developed

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

90 92 94 96 98 00 02 04 06 08 10

World aluminium production and price-cost relationship

Source: IAI, CRU, LME

Western aluminium stocks Aluminium prices and costs

million tonnes $ per tonne in real 2009 terms

Median industry costs

Spot aluminium price

Exchange

Producers


Consumption is now starting to recover but remains well below previous levels outside China

1.00

1.20

1.40

1.60

1.80

2.00

2.20

2.40

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

World aluminium shipments

Source Rio Tinto estimates

Non-China

monthly, million tonnes

Chinamonthly, million tonnes

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Jan02

Jan03

Jan04

Jan05

Jan06

Jan07

Jan08

Jan09

Jan10

Year-to-date -29%

Year-to-date +9%


Large smelter capacity overhangs remain both inside and outside China

17

18

19

20

21

22

23


World aluminium production and capacity

Source: IAI, WBMS, Rio Tinto estimates

Western world

monthly, annualised million tonnes

Capacity

Production

China

monthly, annualised million tonnes

5

7

9

11

13

15

17

19

21


Capacity

Production


Copper: Constrained supply and record Chinese imports pushed market back into deficit in H1 but destocking may be a short run negative

Low copper stocks and constrained supply growth

Source: WBMS, LME, NYMEX, WBMS, Chinese trade statistics

Western copper stocks Western world copper mine production

monthly, annualised million tonnesthousand tonnes

8

9

10

11

12

13

14

15

Jan00

Jan02

Jan04

Jan06

Jan08

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan02

Jan04

Jan06

Jan08

Exchange

Producers and consumers

1.1 percent per annum growth in mine production between 2005-9


(20)

(10)

0

10

20

30

40


Iron ore spot price and domestic Chinese mine production

Chinese steel production is responding to recovery in construction activity and infrastructure spending and driving spot iron ore prices

Iron ore: Current spot prices are supported by call on high cost marginal producers required to meet Chinese demand

Source: World Steel Association, Chinese trade statistics, Reuters Ecowin

Floor space under construction

Apparent steel consumption

Residential construction and apparent steel consumption in China

percent yoy (3 month moving average)

(15)

(10)

(5)

0

5

10

15

20

25

30

Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09

0

20

40

60

80

100

120

140

160

180

200

Domestic iron ore production (LHS)

Spot iron ore price (RHS)

$ per tonne (63.5% Fe, cfr China)

percent yoy(3 month moving average)


0

2

4

6

8

10

12

14

16

18

20

1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Consumption/production (million tonnes)

0

100

200

300

400

500

600

700

800

900Price (c/lb in real 2009$)

Long run price levels are the outcome of a continuous tussle between demand and supply

Refined copper consumption and real copper price

Consumption

Price

Production

Source: LME, Brook Hunt, Rio Tinto


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,0000

2

4

6

8

10

12

GDP per capita(in 2006 US$ at PPP)

Copper consumption (kg/capita)

Population distribution (millions by income group)

Future metals consumption trends will be driven by growth in population and wealth in developing nations, particularly China and India

2008 Population Distribution

2025 Population Distribution

Copper Consumption

China 2025India 2008

Global population distribution and per capita copper consumption

India 2025

China 2008

China 2008 copper consumption

China est. 2025 copper consumption

India 2025 copper consumption

India 2008 copper consumption Source: Brook Hunt, Ecowin, World Bank, Rio Tinto estimates


0

20

40

60

80

100

0 10,000 20,000 30,000 40,000 50,000

GDP per capita (US$ at PPP rates in 2006 terms)

Urb

an

isa

tio

n r

ate

(p

erc

en

t)

National averages

Chinese provinces

Industrialisation and urbanisation within China have some way to run

Source: Global Insight, CIA Factbook

Urbanisation rates across Asia, the United States and European Union in 2008

Urbanisation rates, income and population

Note: Size of bubble reflects total population

United States

Japan

India

EU15

China


Metals consumption could double in next 15-20 years and implies sustained pressure on capital and people …

10

20

30

40

50

60

70

80

78 82 86 90 94 98 02 06

Capital spending by non-ferrous mining sector ($billion in 2009 terms)

0

10

20

30

40

50

60

70

80

2009-15

Base metals

Steel raw materials

Aluminium

Precious metalsTraded energyFertiliserOther

Note: Base metals consists of cobalt, copper, lead, manganese, molybdenum, nickel, tin and zincSteel making consists of seaborne coking coal and seaborne iron oreAluminium consists of alumina refining and aluminium smeltingPrecious metals consists of gold, silver, PGMs and diamondsEnergy consists of seaborne thermal coal and uraniumBased on current unit capital costs and Rio Tinto demand projections and assuming sustaining capital at 4% of revenue.

Sources: MICA (CRU), Rio Tinto estimates

Estimates for 2009 industry

capex $26-55bn

Future sustaining and new capital spending requirement ($billion in 2009 terms)


… and resources. The location and grade of Copper ore will create challenges for the industry.

26%

40%

2009 2025

Notes: 1 Existing mines and funded projects2 Rio Tinto classification

Source: Brook Hunt Q2 2009

Increasing depth . . .

Underground copper production1

(% of global production)

… and higher risk

Current production and project capacity in high risk2 regions

1.17%

1.03%

2009 2025

…decreasing grade…

Copper Industry average grade1

(% Cu)

12%

20%

Current New Projects% Global production % New project capacity


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2006 2015 2020 2025 2030

Long run upwards pressure on Chinese costs will support long run aluminium prices

• Chinese smelters will face increasing competition for access to power

• Renminbi appreciation is expected to resume once export market conditions stabilise

• Carbon pricing will lead to upwards industry cost and price pressure and benefit low carbon sources of production

Source: IEA World Energy Outlook (2008)

Chinese electricity generation requirements

TWh

… including energy. Positive long run aluminium outlook underpinned by rising demand and energy constraints


Current market conditions and outlook

• Spot metals prices are 40-120% above Q1 cyclical lows but remain well under previous peaks

• Stimulus spending, loans growth and stocking activities in China provided initial basis for recovery

• Could see some ‘pay-back’ for this in coming months but may be offset by normalisation in developed world consumption levels

• Strong longer run fundamentals remain intact

MF commodity seminar FINAL

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