Rio Full-Year Profit Declines 51% as Prices Plunge on China

Rio Tinto Group reported full-year profit fell 51 percent after commodity prices plunged amid slowing growth in China, forcing the world’s second-biggest mining company to scrap its progressive dividend policy.

The producer joins rivals including Vale SA and Glencore Plc in trimming or abandoning dividend payments as a safeguard against the deepening commodities collapse. Rio’s payout in 2016 won’t be less than $1.10 a share, after it held the 2015 dividend at $2.15 a share, it said Thursday in a statement.

Underlying profit fell to $4.5 billion in 2015, from $9.3 billion a year earlier, London-based Rio said. That compares with a $4.6 billion average of 24 analyst estimates compiled by Bloomberg.

Global mining companies are under pressure from investors and credit ratings agencies to conserve cash as the collapse in prices continues to hurt earnings. The Bloomberg Commodity Index plunged last month to the lowest in 15 years with Anglo American Plc warning this year may be worse than 2015.

“Commodities prices will bottom this year, but on the other hand there is still downside risk for mining equities,” Jeremy Sussman, a New York-based analyst at Clarksons Platou Securities Inc. said by phone, before Rio’s statement was published.

Rio’s Sydney traded shares fell 1.3 percent to A$40.99 in Thursday trading and have plunged 31 percent in the past 12 months.

CALL FOR CLARITY

After its sharply lower fix on Thursday, the PBOC had later sown confusion by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1 percent that took it to a record low of 6.7600 per dollar.

That left dealers at a loss to know what the central bank's aims were. "Market volatility this week suggests that nobody really knows what the policy is right now. Or if the government itself knows or is capable of implementing the policy even if there is one," said DBS bank.

Markets will remain wary of China's currency goals, as mixed messages come from the central bank, which has repeatedly said it sees no basis for the currency to depreciate, while steering it gradually lower.

Sources told Reuters on Thursday that the PBOC is under increasing pressure from policy advisers to let the currency fall quickly and sharply, by as much as 10-15 percent, as its recent gradual softening is thought to be doing more harm than good.

A flurry of Chinese economic data in the coming weeks is likely to show economic activity continued to slow in December, adding to concerns about the outlook for 2016.

China stocks up after circuit breaker axed, yuan fixed higher

China's major stock indexes rose strongly on Friday after Beijing ditched a circuit breaker mechanism that halted trading twice this week and had been blamed for exacerbating the market sell-offs it was designed to limit.

The People's Bank of China also raised its guidance rate for the yuan for the first time in nine trading days, having allowed the currency's biggest fall in five months on Thursday, sending shivers through regional currencies and global stock markets as investors feared it would trigger competitive devaluations.

Chinese markets have had a turbulent start to 2016, buffeted by the PBOC's lower yuan fixings against the dollar, two days of stock exchange suspensions, weak factory and service sector surveys, and worries about looming share sales by major stakeholders once a ban on such sales expires.

With the circuit breaker deactivated late on Thursday, the CSI300 index .CSI300 was up 3 percent at 3,393.61 points in early afternoon trade on Friday, while the Shanghai Composite Index .SSEC was up 2.8 percent at 3,211.12 points.

The CSI300 had lost around 12 percent in the first four trading days of 2016, giving up all the gains made in 2015.

The circuit breaker, which only came into effect on Jan. 4, came under fire for kicking in too soon with its initial pause in trading, and then encouraging a rush to sell before a second trigger halted the day's trade permanently. 

The yuan firmed in early trade, with dealers suspecting that the central bank intervened through state-run banks to support its currency, which could help allay fears that any depreciation would be allowed to continue at pace.

China battles to shore up stocks, yuan after globe-shaking slide

China struggled to shore up shaky sentiment on Tuesday a day after its stock indexes and yuan currency tumbled, rattling markets worldwide, but analysts warned investors to buckle up for more wild price swings in the months ahead.

Stocks fell more than 2 percent in early trade, prompting fears that exchanges were set for a second day of panic selling after a 7 percent dive on Monday set off a new "circuit breaker" mechanism, suspending trade nation-wide for the first time.

But both the central bank and the stock regulator reacted quickly, and major indexes recouped most of their initial losses despite a late afternoon scare.

The People's Bank of China (PBOC) poured nearly $20 billion into money markets, its largest cash injection since September, and traders suspected it was using state banks to prop up the yuan CNY=CFXS at the same time.

The China Securities Regulatory Commission (CSRC), for its part, announced it was planning new rules to further restrict share sales by major stakeholders in listed companies, and said it would further tweak the circuit breaker mechanism amid criticism that it had fueled Monday's sell-off.

The blue-chip CSI300 index .CSI300 ended up 0.3 percent at 3,478.78 points after bouncing in a 4 percent range, while the Shanghai Composite Index .SSEC dipped 0.3 percent to 3,287.71 points.  

Its heavy handed approach to the stock market crash and its surprise devaluation of the yuan in August had called its policymaking into question and sparked global market volatility.