RIO Share Price Sinks on Iron Ore Shipments (ASX:RIO)

Mining giant Rio Tinto Ltd [ASX:RIO] is trading slightly lower today, on the release of its third-quarter production results.

ASX RIO Share Price Chart - Rio Tinto ASX

Source: Tradingview.com

The RIO share price has been on the slide for the past few months, falling victim to bad PR and a shaky outlook for iron ore.

At the time of writing, the RIO share price is down 0.69%, or 66 cents, to trade at $95.61 per share.

Cultural heritage clashes with output

There were two major points investors will take out of RIO’s quarterly activities today.

The first: RIO is unsure of the extent to which an improved approach to cultural heritage will affect future output of iron ore — its most important division.

Iron ore shipments fell 5% to 82.1 million tonnes in the quarter versus Q2 CY2020.

Iron ore production increased by 4% on the previous quarter.

Though the miner remains on track to meet its iron ore export guidance.

RIO still expects to export between 324 million and 334 million tonnes of iron ore in 2020.

A figure that was downgraded at the beginning of the year when a cyclone disrupted its Pilbara operations.

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The second: RIO has been hit with a new class action over cost and schedule blow outs on Mongolia’s Oyu Tolgoi project.

An underground expansion of Oyu Tolgoi was expected to cost US$5.3 billion when announced in 2015.

Now the cost of the project has since blown out to around US$6.6–7.1 billion thanks to weaker than expected geology combined with slower than expected delivery of certain aspects.

The project will be delivered close to two years later than was envisaged in 2015.

The cost and schedule blow outs have left Turquoise Hill Resources Ltd [NYSE:TQR], who own 66% of the Mongolian mine, without sufficient funds to complete the expansion.

Where to for the RIO share price?

RIO is a diversified company, meaning its share price action will be based on a number of micro- and macroeconomic factors.

A key one being the iron ore price.

Iron Ore Price Chart 2020

Source: Trading Economics

Here is the iron ore price over the past five years.

Despite the slow in manufacturing, it has never been stronger than it is right now over this period.

Prices were above US$100 per tonne for the entire September quarter, which could put RIO on track for a bumper financial result in 2020.

But the miner remains cautious:

Chinese iron ore demand is at record levels against a backdrop of recovering seaborne supply that was disrupted earlier in the year. However, with the major producers expected to deliver strong volumes in the fourth quarter, iron ore inventories are expected to grow modestly as China’s steel consumption eases from record highs and scrap consumption increaseshowever, ex-China steel production remains down significantly year on year.

Chinese Demand for Iron Ore - Iron Ore Demand China

Source: Trading Economics

Perhaps RIO are right to maintain a cautious outlook, analysts are expecting iron ore to trade at US$115.19 by the end of this quarter and estimate it to trade at US$100.61 in 12 months’ time.

If you currently hold Rio Tinto shares, perhaps you might be reconsidering your investment portfolio. Before you rush off to sell, make sure you read our economist’s report on the five Aussie blue chip stocks you should sell today. You can get your free copy here.

Regards,

 Lachlann Tierney,
For The Rum Rebellion


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


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