Steel stocks have moved to the upside Wednesday morning. Today's buying interest comes after the world's third biggest miner Rio Tinto Plc (RTP) revealed its cost cutting plans, which include the elimination of 14,000 jobs.
On the news Rio Tinto shares have jumped about 21%. Around 11:00 am Eastern Time, shares of Rio Tinto were up $14.95 at $88.04.
After the closing bell on Tuesday, Rio Tinto announced a detailed package of measures "in response to the unprecedented rapidity and severity of the global economic downturn, which has caused sharp falls in commodity prices and a significantly weaker outlook."
Under the measures, the company will try to reduce its net capital expenditure for 2009 to $4 billion from over $9 billion provided earlier, while retaining future growth options. Capital expenditure will be reduced to sustaining levels in 2010, absent an improvement in expected commodity market conditions. The company noted that net debt has reduced by $3.2 billion in the period from 30 June to 31 October to $38.9 billion and that the company is committed to reducing further net debt by $10 billion by the end of 2009.
"UK-Australian Rio Tinto, the world's third-largest mining conglomerate, has responded to falling commodity prices with drastic measures: Its investment budget is being slashed $5 billion to just $4 billion, half of which will probably go to maintaining existing facilities," said Commerzbank analyst Eugen Weinberg. "The same trend can be seen elsewhere in the mining industry and will mean problems once demand picks up again, which will favor prices."
Rio Tinto also announced it will reduce controllable operating costs by at least $2.5 billion per year in 2010, which includes a reduction in global headcount of 14,000 roles, that is 8,500 contractor and 5,500 employee roles.
The company also envisages 2008 dividend to be held at the 2007 level of US 136 cents with no 20% uplift in 2008 and 2009.
The company has also expanded its scope of assets targeted for divestment, including significant assets not previously highlighted for sale. It is also working actively on measures to generate cash from joint ventures on its existing assets and projects.
In early November, Rio Tinto reduced its iron ore production for 2008 from its Pilbara mines in Western Australia by about 10%, citing reduced demand from its customers in China and lower shipments. However, the company expects demand from China to rebound in 2009.
Meanwhile General Steel Holdings Inc. (GSI) stock has risen about 11%, up 49 cents at $4.44.
Other stocks within the sector posting notable gains include Cliffs Natural Resources Inc. (CLF), China Precision Steel Inc. (CPSL), Insteel Industries Inc. (IIIN), Metalico Inc. (MEA) and Sutor Technology Group, Ltd. (SUTR)
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