Rio Tinto CEO rejects fears over China growth, demand

By Eric Onstad

LONDON, Aug 6 (Reuters) - Demand for commodities is healthy on the ground in top consumer China despite worries about an economic slowdown that has weighed on prices, the head of mining group Rio Tinto (LSE: RIO.L - news) said on Thursday.

It was unclear, however, when China will cut back excess output in aluminium that has led to heavy exports and a glut on world markets, Chief Executive Sam Walsh said.

The 19-commodity Thomson Reuters (Dusseldorf: TOC.DU - news) /Core Commodity CRB Index this week hit the lowest levels in 12 years, partly due to worries about a slowdown in growth in the world's second largest economy China.

Some foreign investors and analysts have said China is growing only half as fast as the 7 percent that official data shows, or maybe even slower.

"If I step back from it and look at demand for our products, almost without exception, the demand is strong from China," Walsh told reporters after Rio released first-half results.

"Whether it be iron ore, copper, gold, silver or diamonds, the demand is strong and that indicates that the fundamentals are much stronger than some external pundits are saying."

Rio, the world's second biggest producer of iron ore, said in its results statement it expects a "new normal" of lower global growth from a higher base.

Research by economists at the Anglo-Australian mining group supports the Chinese government's target of 7 percent economic growth this year, Walsh added.

"They're (Rio economists) basing that on a lot of bottom up analysis and factors and also input from a number of expert companies based in China."

Walsh said some future closures of Chinese aluminium smelters, which could help curb global oversupply, may be prompted by China's move to a consumer-led economy from one focused on investment in infrastructure.

Many smelters in China near coal fields are still operating using "stranded power", but this will eventually change.

"Some of that power will be needed to drive a consumption led economy," he said. "It's not impossible that there'll be a rejigging of aluminium production. Exactly when that comes to pass, it's pretty tough to tell."

The benchmark aluminium price on the London Metal Exchange hit its lowest in six years on Thursday amid strong Chinese exports of semi-finished aluminium products, which jumped 44 percent in the first half of the year. (Reporting by Eric Onstad, editing by David Evans)