Rio Tinto (RIO)
Rio Tinto's subsidiary, Pacific Aluminium, may curb production at its aluminium refinery at Gove in the Northern Territory.
The price of aluminium has fallen 16% since February highs and production costs remain high, posing problems for Rio. In the current environment, Rio can’t sell Pacific Aluminium so the focus appears to be on extracting the maximum cost savings.
Analyst estimates indicate aluminium accounts for 25% of Rio’s assets. Investors, no doubt, are sensitive to Rio’s actions surrounding aluminium since the purchase of Alcan in 2007, which has proven to be disastrous for the miner.
Investor sentiment is set to be shaky today after James Bullard, Federal Reserve Bank of St Louis president, suggested the Federal Reserve could make a small cut to bond purchases in October.
Industrials were the biggest losing sector on Friday on the US-based S&P 500 and could be in the firing line of local investors today. In the US, investors now demand more compensation for debt of industrial companies than bank debt, breaking a trend that has been in place since September 2007.
The perception of risk from company specific to taper timing will be driving the industrials sector today.