Morning Note: Market news and results from Rio Tinto.

Market News

The minutes from the last Federal Reserve meeting showed officials expressed readiness to hold rates steady until they see more progress on inflation. Investors are pricing in one rate cut in 2025, with the possibility of a second. Raphael Bostic told Yahoo Finance he supports a pause until the impact of Trump policies becomes clearer.

Donald Trump said a fresh trade deal with China is “possible” as he touted his “great” relationship with Xi Jinping. He didn’t provide further details nor say if or when the two leaders would speak. The offshore yuan climbed. The EU is ready to discuss cutting tariffs on autos and other goods as it seeks to head off a trade war with the US, the bloc’s top trade official said.

US equities were little changed last night – S&P 500 (+0.2%); Nasdaq (+0.1%). Defence stocks were weak following a report that US Defence Secretary Pete Hegseth has asked officials for plans on how to slash military spending. Treasuries edged higher – the 10-year Treasury yields 4.52% – and gold moved to a record high of $2,953 an ounce.

In Asia this morning, markets fell as concerns over a realignment of US geopolitical priorities weighed on risk sentiment: Nikkei 225 (-1.2%); Hang Seng (-1.6%). The yen strengthened past 150 for the first time since December on speculation of further rate hikes.

The FTSE 100 is currently 0.3% lower at 8,684. Companies trading ex-dividend today include AstraZeneca (1.44%), BP (1.37%), GSK (1.11%), Imperial Brands (1.95%), and Land Securities (1.63%). UK consumer confidence fell to its worst level since Labour came to power, the British Retail Consortium said. Half of those surveyed expect the economy to worsen over the next three months. Sterling trades at $1.2610 and €1.2085, while 10-year Gilts yield 4.61%.

Source: Bloomberg

Company News

This morning, Rio Tinto released its full-year results for 2024. Earnings were slightly below the market expectation, with lower prices for iron ore outweighing growth in its copper and aluminium businesses. The dividend was cut by 8%. In response, the shares are little changed in early trading.

Rio Tinto is a diversified global mining company. It is the second-largest seaborne iron ore producer – a commodity that accounts for more than 80% of underlying product earnings – and a major producer of aluminium, copper, and other minerals and materials. The group currently has more than 100 projects at varying stages of maturity.

The strategy is one of value over volume. The focus is on high-quality, long-life assets predominantly located in lower-risk countries and generally positioned in the first quartile of the industry’s cost curve. A combination of capital discipline, increased productivity, maximising cash flow from operations, and portfolio shaping is aiming to deliver strong cash generation and shareholder returns. The target is to generate 3% CAGR production growth between now and 2033.

During 2024, underlying profitability (EBITDA) fell by 2% to $23.3bn. The decline was driven by commodity price increases which cut $1.6bn from profitability. This was primarily driven by iron ore (-11%), offset in part by higher prices for copper (+8%), bauxite (+26%), and aluminium (+8%).

Change in volume and mix contributed $0.2bn to profitability, driven by rising copper (+3%) and bauxite (+7%) volumes. For 2025, production guidance is consistent with that released last December: Pilbara Iron ore shipments (323mt-338mt), bauxite production (57mt-59mt), and Copper (780kt-850kt).

The company remained focused on cost control, in particular maintaining discipline on fixed costs. Overall, lower operating cash unit costs benefited underlying EBITDA by $0.6bn. This year, the group expects Pilbara iron ore unit cash costs up slightly to $23.0/t-$24.5/t and Copper C1 net unit costs of 130c/lb-150c/lb.

During the year, capital expenditure grew by 36% to $9.6bn. Looking forward, guidance for capex for 2025 is $11bn, made up of $3bn in growth, depending on opportunities, $4bn of sustaining capital, $3bn-$4bn of replacement capital, and $0.3bn of decarbonisation capital.

Free cash flow fell by 27% to $5.6bn but was supported by effective working capital management. The group ended the year with net debt up 30% at $5.5bn, with gearing at 9%. Rio declared a dividend at the top-end of the 40%-60% payout range, albeit the payment is down 8% to 402c, equating to a 6% yield.

Source: Bloomberg