Rio Tinto’s share price sets sights on $100
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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