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LONDON: Rio Tinto posted a 38 percent drop in annual profit and more than halved its dividend on Wednesday, hurt by weaker iron ore prices as demand from China slowed, while higher labour and material costs also ate into earnings.

Strict COVID-19 curbs in top steel producer China curtailed economic activity last year, dragging down iron ore prices from lofty levels a year earlier.

The world’s top iron ore producer said China consumption showed signs of rebounding and commodity prices had found support in recent months, although the economy remained volatile.

“It is very positive that China now also comes out of COVID lockdowns ... and we are quietly confident that (China’s) demand will be a stabilising factor for the world economy in 2023,” Chief Executive Jakob Stausholm told reporters.

China, the world’s second-biggest economy, in January re-opened its borders and eased quarantine requirements for travellers after three years of strict controls, and is putting in place policies to boost its sagging economy.

Rio lowered its capital investments guidance for 2023 to $8 billion from a prior estimate of between $8 billion and $9 billion, while raising its estimates for 2024 and 2025 to between $9 billion and $10 billion.

On Tuesday, rival BHP Group reported a steeper-than-expected 32% fall in first-half profit but also flagged a brightening outlook in China.

Rio Tinto last year earned an average realised price of just $106.10 per dry metric tonne (dmt) of iron ore, down from $143.80 per dmt in 2021.

Along with higher wages due to skilled labour shortages, the Anglo-American miner had to pay more for fuel and raw materials.

Rio Tinto reported underlying earnings of $13.3 billion for 2022, compared with a record $21.4 billion in 2021. The result missed a Refinitiv estimate of $13.8 billion.

Additional investments to ramp up production at the Gudai-Darri mine in Pilbara, along with higher diesel prices and labour costs, resulted in Pilbara unit cash costs rising to $21.30 per tonne in 2022, Rio said.

It declared a full-year dividend of $4.92 per share, down from 2021’s record payout of $10.40 per share, and maintained its production and unit cost guidance for 2023.

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