Bloomberg LP - Mining giant Rio says rising commodity prices won't be enough to convince China to stop buying... high prices are here to stay

Rio Says China Inflation Won't Undermine Commodities (Update1)

By Jesse Riseborough

June 16 (Bloomberg) -- Rio Tinto Group, the world's third- largest mining company, said recent gains in inflation in China driven by rising food and energy costs won't undermine strong demand for commodities.

``A leveling out in food and energy prices will lead to falling 'headline' inflation without a dramatic impact on economic growth,'' Tom Albanese, chief executive officer of London-based Rio, said in a slides presentation sent today to the Australian stock exchange. ``Any sustained inflation is likely to support aluminum and iron ore prices.''

Inflation in China, the world's fastest growing economy and biggest consumer of commodities, slowed to 7.7 percent in May, from 8.5 percent in April, still exceeding the government's annual target of 4.8 percent, according to the statistics bureau. Demand from China has spurred six straight years of commodity gains, including record prices for iron ore and copper.

Prices for Rio's products ``are supported by economic fundamentals, not financial bubbles,'' Albanese said, citing dwindling supplies of metals including copper. ``Current prices of key Rio Tinto products are justified by the economic fundamentals of sustained demand growth and tight supply; together these factors will support long-run prices.''

Rio, battling a $164 billion takeover offer from the world's largest mining company BHP Billiton Ltd., rose A$4.62, or 3.6 percent, to A$134.50 on June 13 on the Australian exchange.

To contact the reporters on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net;

Last Updated: June 15, 2008 19:39 EDT