Why is the RIO share price lagging other miners today?

Posted: 15 October 2021 12:59 pm

Shares in mining giant Rio Tinto are up just 7% in the last 12 months.

The big miners are normally among the most popular shares on the ASX. However, on Friday shares in mining giant Rio Tinto (ASX: RIO) were down 0.8% to edge below $100, even as its peers BHP (ASX: BHP) and Fortescue Metals Group (ASX: FMG) were trading significantly higher.

What is holding back the RIO stock price?

Rio Tinto shares are running on a different track to its peers today after the world’s biggest iron ore exporter released its September quarter update, and it certainly hasn’t made for pleasant reading for shareholders.

The miner shipped 83.4 million tonnes of iron ore in the quarter, improving on the 76.3 million tonnes in the June period. However, it again cut the full year guidance for iron ore shipments, blaming a tight labour market in Western Australia for delays in the completion of a new greenfield mine.

Rio now expects 2021 Pilbara iron ore shipments between 320 million tonnes (mt) and 325 mt, a decrease from the previous range of 325 mt to 340 mt. That could mean the company could be overtaken by Brazilian rival Vale as the world's biggest iron ore producer.

The mining major also lowered production forecasts at its bauxite, copper and Canadian iron ore operations, adding to the grim picture.

"It has been another difficult quarter operationally and ... we recognise the opportunity to raise our performance," Chief Executive Jakob Stausholm said in a statement.

Cloudy outlook

Rio’s poor operational performance has been ongoing for some time. It reported a 12% slide in iron ore shipments in the June quarter.

The latest downgrade comes at a time when the iron ore market is already feeling the heat, with prices sliding over the last 2 months as demand drops in the biggest market China and supply constraints ease.

Iron ore prices are now nearly 45% lower from their peak in May and the steep decline has prompted analysts to revise their earnings estimates for the mining majors just months after these companies reported record profits and dividends.

Overnight, spot prices for the key steel making ingredient lifted 1.4% to US$125.91 a tonne.

"There are some clear headwinds from recent regulatory tightening (in China) and the transition may lead to some near-term volatility," Rio said.

The miner has kept its full year cost guidance for now, but warned it was still at risk and was “subject to price escalation of key input costs in particular freight and demurrage, diesel, labour and contractor rates and additional COVID-19 costs to support workforce vaccinations”.

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