FTSE 100 mining giant Rio Tinto (RIO) was a big gainer this morning after its first quarter update gave a glimpse into China’s economic recovery.

Rio makes most of its profit from China, and revealed demand in the country has ‘continued to recover’ with ‘solid demand’ for its iron ore from China’s steel mills despite the coronavirus pandemic.

It comes as the world’s most populous country revealed its economy has shrunk for the first time in four decades, contracting by 6.8% between January and March.

Rio's performance has been closely watched for clues by those seeking an insight into China's economic recovery, with China the biggest iron ore consumer in the world and Rio Tinto one of the biggest iron ore producers in the world. Iron ore is one of the key ingredients for making steel.

The miner also added that its order book ‘remains healthy’, with its London-listed shares rising 4.6% to £38.64.

Rio’s overall production numbers for the first quarter of 2020 were mostly in-line with expectations.

Full-year production guidance was mostly unchanged, with the exceptions being reduced copper and titanium dioxide slag guidance with output at the lower end of the existing range indicated.

PROFITABLE IRON ORE

Iron ore shipments were up 5% compared to the same quarter last year at 72.9m tonnes, but down 16% on the previous quarter, lower than analysts expected.

However, the commodity is still profitable for Rio with the cost of digging it out of the ground standing at $14-$15 per tonne, while the market price for iron ore has hovered between $80-$90 per tonne over the past two months.

The company has cut planned capital expenditure for 2020 to $5bn-$6bn, down from previous guidance of $7bn, as a result of constraints from the coronavirus pandemic as well as favourable currency impacts from a strong US dollar.

Rio added that some expenditure originally planned for 2020 might flow into 2021 and 2022.

'FOCUSED ON BUSINESS AS USUAL'

Chief executive Jean-Sebastien Jacques said Rio Tinto is ‘focused on maintaining a business as usual approach’ and has taken ‘extensive measures’ to ensure it can do so safely.

Jacques added, ‘All of our assets continue to operate and we achieved a very robust production performance in the first quarter.

‘Our world-class portfolio and strong balance sheet serve us well in all market conditions and are particularly valuable in the current volatile environment.

‘Our resilience and value over volume strategy mean we can continue to invest in our business, and support our communities and host governments.’

READ MORE ABOUT RIO TINTO HERE

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Issue Date: 17 Apr 2020