All trading involves risk. Losses can exceed deposits.

Rio Tinto cuts spending

Rio Tinto aims to cut spending by 20% by 2015, while at the same time reducing its net debt.

All trading involves risk. Losses can exceed deposits.

This week started with improving Chinese manufacturing figures, as HSBC confirmed a slow but steady return to expansion in the Chinese economy. However, when put into context and compared to the 2010 and 2011 levels of mid-55, there is still some way to go before the Asian powerhouse returns to its previous highs.

Looking around the globe, the US, the UK and the EU are all in recovery, although mainland Europe has some way to go in order to catch up with the other two.

So why has Rio Tinto decided to cut spending now? The speed and conviction of recovery in numerous economic regions is far from convincing, and at some point the US Federal Reserve will reduce its quantitative easing process, leaving equity markets to stand on their own two feet. When this test finally does come there are bound to be a few wobbles, and Rio Tinto shifting cash away from spending and reducing debt should make the company a little more resilient to the buffeting that the markets will give them.

Short term this move might cap returns, but longer term it should help profitability and may enable the firm to reward investors with improved dividends.  

Rio Tinto group

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts