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Rio Tinto exec sees FY'18 earnings taking hit from higher raw materials prices

Alf Barrios, head of Rio Tinto's aluminum business, said increasing raw materials prices would affect the company's earnings by US$400 million in 2018 against the year-ago total, the Financial Times reported Oct. 11.

The executive also flagged cost pressures.

Rio Tinto committed a record interim dividend of US$2.2 billion, or US$1.27 per share, after posting a 33% year-over-year surge in its first-half profit to US$4.38 billion.

According to the report, Rio Tinto expects to take a US$178 million hit to its profits from old alumina supply contracts in the first half of the year. It added that there had been a further "negative impact" totaling US$130 million in the third quarter.

The company sells alumina at a percentage of the benchmark aluminum prices under the contracts. Compared to alumina, which has jumped in value this year after several outages and disruptions, aluminum on the London Metal Exchange has declined in value.

The mining major also provided investors with a formula to get an estimate of future impacts, saying a 10% increase in the alumina price would reduce earnings by US$100 million.

The company has deals to supply 2.2 million tonnes of alumina to customers, of which 30% of the contracted volumes would roll off after 2023 and the bulk by 2030.