Commodities: Rio Tinto Makes Further Cuts

Commodity giant Rio Tinto makes further production cuts

Rio Tinto has said it's thinking about selling more of its assets and making more production cuts, but it's more than simply taking things into consideration, there's nothing out there at this time that will change the fortunes of the company in the short term.

Even the billions being thrown around with the stimulus plans of countries won't do much to make any difference. It'll help them and similar companies a little, but more in the sense of patching holes in the boat than catching a good amount of fish.

According to Rio Tinto CEO Tom Albanese, the major factor at this time for any type of recovery is the stimulus package implemented by the Chinese. Again, it'll help some, but it won't have much impact on the bottom line or the need to cut operational costs.

This is confirmed by some of the cuts they've made in projects that would have had potential for growth. Put on hold are the iron-ore project in Brazil as well as the expansion of copper operations in Australia. They've also shut down diamond processing in Australia too.

By the end of 2008, the company said it would cut 14,000 jobs, which would cut expenses by $5 billion. They also said they have a goal of reducing their debt load by $10 billion.

To that end, they hired a new president of their aluminum division, who is ready to identify and make the cuts necessary to go forward, said Albanese, which undoubtedly include more layoffs.

Being a bellwhether commodities company, this gives a snapshot of what's ahead for 2009 in the sector. Safety will drive the movement of commodities in the near term, which should help gold and silver move up for the year.

Oil also should move up, as OPEC continues to slash production in order to stimulate more demand. Even so, if the global economy continues as it is for some time, all the cuts in production won't force people to buy gas at the higher prices, they'll just cut back more on using it.

Cuts will continue in the commodity sector until governments and companies begin buying materials again.