BHP and RIO share prices tumbling today: Here’s why the miners are falling
Here's what investors need to know with commodity price falls continuing to weigh down on Australia's largest miners.
A decline in the top mining stocks is a key factor in the sharp drop in the Australian share market on Friday. Shares in Fortescue Metals Group (ASX: FMG) were down nearly 5% at the time of writing, while larger rivals BHP (ASX: BHP) and Rio Tinto (ASX: RIO) had both dropped more than 3.5% each.
Why are the BHP and RIO share prices falling?
The mining giants are again being impacted by falling commodity prices.
Specifically iron ore.
The latest iron ore futures show the commodity is down 4.8% to US$104.96 per tonne. It is now within touching distance of the psychological US$100 a tonne level and has now lost more than a third of its value over the last 2 months.
This already weak sentiment in the sector was further undermined by a quarterly production report by Rio Tinto.
On the face of it, Rio's June quarter results are impressive. Its flagship Pilbara iron ore operations reported an improved performance, shipping 79.9 million tonnes in the 3-month period, a 5% improvement over the same period last year.
Those delivered numbers were in line with analyst estimates and mean that Australia's top iron ore exporter is on track to deliver on full-year shipment guidance of 320 to 325 million tonnes, as the company ramps up output at its new Guida-Darri mine in Western Australia.
But investors appeared to be spooked by the mining giant's confirmation that it was facing labour shortages in the state and it's warning that rising inflation would impact its underlying earnings in the second half, even as prices are on the decline.
"Economic outlook weakens"
Rio said rising COVID-19 cases at its Pilbara operations had led to "elevated levels of unplanned absences", resulting in a 2% drop in iron ore shipments during the first half of 2022, while adverse weather conditions also played a part.
It also warned of inflationary pressures and the risk of weaker demand for iron ore from top consumer China.
"The economic outlook is weakening due to the Russia-Ukraine war, tighter monetary policy to curb rising inflation, and targeted COVID-19 restrictions in China. Prices for our commodities decreased in the quarter, amidst growing recession fears and a decline in consumer confidence," it warned on Friday.
Rio also kept its unit cost guidance between US$19.50 and US$21 a tonne, despite an expected weakening in the Australian dollar, in effect lifting its cost estimate for the year. It also said the higher rates of inflation had directly impacted underlying earnings, resulting in increased pre-tax costs of about $400 million in the first half.
"The lower iron ore realised prices, higher than expected provisional pricing for copper and the guidance downgrades in aluminium all are likely to combine to reduce consensus estimates heading into the half year results in a week," RBC Capital Markets analyst Tyler Broda said in a note.
Incidentally, analysts at Goldman Sachs have also cut their rating on top miner BHP to "Neutral" after forecasting a 20% fall in mining sector earnings in 2022-23.
Considering buying RIO, BHP or FMG shares?
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