MELBOURNE – Rio Tinto Group, the world’s second-biggest miner, is no longer certain of picking the path ahead for growth in China, its biggest customer. It isn’t alone.

China’s short-term demand remains difficult to read, Glencore’s CEO Ivan Glasenberg said last month after the largest miners were wrong-footed this year by Chinese stimulus that’s boosted raw materials demand, lifting prices following five straight annual declines. Rio now sees long-term targets as unhelpful, and has drafted a range of potential growth scenarios, with titles including “China Malaise” and “Fits and Starts,” according to CEO Jean-Sebastien Jacques.

“It’s not about predicting the future, it’s about preparing for any future -- this is where mining and metals companies have gone wrong in the past,” EY’s Global Mining and Metals Sector Leader Miguel Zweig said in an e-mailed response to questions. “Growth in China, which is critical to pricing, is difficult to anticipate.”

The muddied outlook means Rio, which won about 42% of first-half revenue from China, has backed away from its forecast that the nation’s steel output will rise through 2030 to peak at about one billion tons. BHP Billiton ’s top economist said this month iron ore exporters have been caught out by higher prices, while Glencore last month booked a $395-million loss after hedging future coal production before a rally amid a surge in Chinese imports.

Planning for varied outcomes for China’s growth would be a positive step from the miners, as are signs they’re prepared to be more responsive on supply, Tim Murray, managing partner with China-focused J Capital Research said by phone from Sydney. Uncertainty over pricing means the producers should boost productivity and continue to review portfolios to focus on key commodities and regions, according to EY’s Sao Paulo-based Zweig.

Glencore is closely monitoring China’s commodities demand and also the nation’s adjustments to coal production to make decisions on its own output, Glasenberg said last month. BHP’s marketing team, including staff on the ground in China, “have a mandate to challenge existing views,” Arnoud Balhuizen, the producer’s president of marketing and supply, said at a media briefing in Singapore on Sept. 2. “We want to consider a range of scenarios, as uncomfortable as they may be at times.”

STIMULUS QUESTION
Economic data for China released Tuesday showed factory output, investment and retail sales all exceeded estimates, while crude steel production rose 3% in August from a year earlier. Though the indicators offer signs of resilience in China’s economy, a key question is how sustainable growth will be when policy support is withdrawn, according to Bloomberg Intelligence.

China’s willingness to step in to shore up growth is complicating the picture for observers of the nation’s economy, according to J Capital’s Murray. “Every time you think they are really not going to stimulate now, and will focus on restructuring the economy, the economy starts falling fast and they return to stimulus,” he said. “It’s hard to anticipate the government’s response.”

Glencore’s Glasenberg said last year that China continues to puzzle the industry. “None of us know what is going on there,” he said. Producers, including BHP, were unprepared for China’s demand rush in the 2000s and then failed to forecast the scale and speed of a reversal in prices in recent years, BHP CEO Andrew Mackenzie said in a March speech in Melbourne.

Along with others, BHP was “caught short” this year as iron ore supply has undershot amid improved China demand, according to Huw McKay, the producer’s vice president of market analysis and economics. “We have been surprised by the price,” McKay said in a Sept. 2 interview in Singapore. “We’re not alone there, and it’s been a string of surprises.”

An uncertain outlook for prices and earnings means producers will need to balance plans to invest in growth with efforts to strengthen balance sheets, said EY’s Zweig. “Companies are facing a difficult choice about how to allocate capital and create value.”