Rio Tinto’s share price sets sights on $100

Posted: 24 September 2021 1:11 pm
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Shares in mining giant Rio Tinto are up just 5% in the last 12 months.

Australian investors’ love for the mining sector is well known and mining giant Rio Tinto (ASX: RIO) is normally among the list of most traded stocks on the ASX. The stock has suffered in recent weeks following the plunge in iron ore prices but on Friday appears set to cross the psychologically important $100 a share level.

What is bolstering the Rio Tinto stock price?

Shares in the big miners, including Rio Tinto, appear to have reversed course over the last 2 days in line with the rise in iron ore prices. Overnight, spot prices for the key steel making ingredient lifted 1.3% to US$108.90 a tonne, while Singapore iron ore futures rose 2.3% to US$112.15.

This follows a nearly 17% rebound in the previous session that took the commodity back over the US$100 a tonne level.

The rebound in the price follows Chinese property developer Evergrande staving off a bond payment default, which would have triggered a market sell-off in iron ore due to the sheer size of the property developer.

Additionally, iron ore prices have been sinking more than 50% off the back of news that China is curbing its steel production as it looks to align with new carbon emission targets.

Analysts had been expecting the decline to be more gradual and even the federal government estimated that iron ore prices would stay above US$100 a tonne until late-2022.

Outlook remains cloudy

The big miners have benefited from an extended run up in prices of iron ore, which largely traded above US$200 a tonne between April and August due to a spike in demand in China and global supply constraints.

This directly boosted the bottom line of Rio, as well as rivals BHP (ASX: BHP) and Fortescue Metals Group (ASX: FMG). The record profits also resulted in their dividend payouts ballooning during the August earnings season.

The recent declines have resulted in a spate of downgrades in earnings expectations for these companies. UBS analysts recently cut their price targets for each of the 3 major mining companies, and also downgraded their rating on Rio and Fortescue to a "Sell".

However, others believe that the mining giants will continue to report strong profits given their massive operations in the Pilbara and their strong cost advantage and cash positions.

That could help cheer up investors, who watched mining stocks hit their 52-week peaks in recent months and then reverse course completely.

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Considering buying RIO shares?

If you are keen to buy shares in BHP, Rio Tinto or Fortescue Metals, you can invest through an online share trading platform.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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