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Cost of raw materials rising at fastest pace since 1970s, warns Rio Tinto

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raw materials costs inflation - David Gray/Bloomberg
raw materials costs inflation - David Gray/Bloomberg

Mining giant Rio Tinto has reported the sharpest rise in the cost of raw materials since the 1973 oil crisis.

The FTSE 100 company said the economic outlook was darkening amid soaring inflation, Russia's war on Ukraine, and fresh Covid lockdowns in China.

It also posted a 15pc fall in iron ore shipments from the key Pilbara region in the first three months of the year, down to 71.5m tonnes, partly caused by labour shortages and supply chain snags.

Jakob Stausholm, Rio Tinto's chief executive, said: "Production in the first quarter was challenging as expected, re-emphasising a need to lift our operational performance."

Rio Tinto is one of the world's largest miners and metals companies, producing iron ore, copper, diamonds and aluminium from its sites around the world.

In March it announced it was cutting ties with all Russian business over the Ukraine war, including by taking full control of an alumina refinery it co-owned with Russia's Rusal, in Australia.

In Wednesday's production update, it said commodity prices had been high as a result of supply disruptions, while longer term demand would be underpinned by the shift to greener energy which requires lots of copper, lithium and other mined products.

However, it added: "Recent input cost increases are the largest raw material cost hike since the oil crisis in 1973. Rising interest rates globally pose downside risks to economic growth.

"Further downside risks include a prolonged war and other geopolitical tensions, extended labour and supply shortages."

Rio Tinto is under scrutiny after releasing a damning internal report in February into its workplace culture, which found widespread accusations of bullying, harassment and racism at its mines.

It followed a major scandal in 2020 after the company, under Mr Stausholm's predecessor J-S Jacques, blew up Aboriginal caves while looking for iron ore in Australia.

Mr Stausholm said it was implementing all 26 recommendations to improve workplace culture and had also struck a deal with the Yinhawangka Aboriginal Corporation to improve the protection of heritage sites.

Mr Stausholm added: "These actions will ensure we continue to deliver attractive returns to shareholders, as we invest in sustaining and growing our portfolio."

Shares in London fell 4.5pc to 5,868p.