Rio Tinto Bets on Bullish Chinese Demand
Strong global demand for industrial materials will continue for up to ten years, driven by China's fast economic growth, the head of mining company Rio Tinto told CNBC on Tuesday.
The bullish view on industrial goods demand underpins Rio's $38.1 billion purchase of Canadian aluminum firm Alcan, tying the merger's success with that of the Chinese economy.
"We may be looking at years, perhaps even a decade or more of very high global demand growth in the things that we produce," company CEO Tom Albanese told "Squawk Box Europe."
China's economy has been growing quickly and demand for raw materials and commodities has been soaring.
"The mining investor is now switched entirely to looking at China," Andrew Keen, research analyst in global metals & mining at Sanford Bernstein, told "Squawk Box Europe."
Rio's reasoning for the purchase also stems from a view that the supply of industrial goods is diminishing and future levels of output will struggle to cope with demand.
"That's really what's attracted us to Alcan, because we don't see many of those tier one assets out there," Albanese said.
Many analysts saw the Alcan price tag as too high, but if the costs of raw materials rise, this could add significant value to Rio's newly acquired asset portfolio.
"Even Rio Tinto spending $38 billion on Alcan actually looks like not such a risky deal … the risk at the moment is really commodity price," said Keen.
Shares of Rio were 2.2% lower in a positive FTSE-100, while Alcan was flat on the NYSE.