Rio Tinto shares fall 6% as iron ore outlook grows gloomy

Mainstay Australian iron ore miners have suffered heavy share price losses in the last two days, following news that mining giant Vale will resume production.

Australian iron ore miners have been on a tear in the last 12-months – as the price of Iron Ore – a vital component in steelmaking, has risen from around $70 per tonne to $120 per tonne.

However, as news emerged yesterday that Brazilian mining behemoth Vale has been given approval to partially resume production at one of its key mines; Rio Tinto Ltd, BHP and Fortescue Metals Group all suffered heavy share price declines in response.

Why Vale is important

Earlier this year, Brazil’s National Mining Agency (ANM) suspended production at a number of Vale’s mines following concerns related to dam stability.

Vale’s Fabrica mine, Brucutu mine, and Vargem Grande Complex were all impacted by the ANM’s decision.

Yet with the approval for Vale to reopen its Vargem Grande Complex, the company now expects to contribute an additional 5 million tones to annual iron ore production.

Vale subsequently reiterated its 2019 iron ore production targets of between 307 to 322 million tonnes.

Iron ore miners fell – and have continued to fall – in response to the news.

Mind you, it’s not just Vale firing up production again that has seen Australian iron ore miners lower.

Analysts also drive concern

Analysts, looking towards a lower iron ore price and over-supply issues, have likely contributed to the sour sentiment around Australian iron ore miners over the last two days.

For example, a recent research note from Liberum, pointed out that:

‘Steel inventories at traders have been unseasonally restocking, iron ore port inventory declines have stalled (actually built last week), spot steel mill profitability in China has now fallen to break-even levels and supply from scrap steel and domestic iron ore appear to have accelerated.’

To add to this weaker outlook, a forecast from UBS predicts that the price of iron ore could fall to $100 per tonne in the final quarter of 2019 and potentially as low as $80 per tonne.

Rio Tinto’s share price in focus

The Rio Tinto Ltd share price was the heaviest hit off the back of this news, having fallen more than 6% since Wednesday.

Just like Vale, Rio Tinto (ASX: RIO) has experienced its own set of challenges in recent times.

In June, operational difficulties saw the company revise its 2019 Pilbara shipments from between 333 to 343 million tonnes, to between 320 to 330 million tonnes.

Indeed, when the company updated investors in July, Pilbara iron ore production had dropped a sizable 8% year-over-year, primarily as a result of weather disruptions.

Moreover, early this month, the Royal Bank of Canada, when analysing BHP, reiterated their underperform rating of Rio Tinto on the basis of valuation.

The bank currently has a price target of just A$84.00 on the iron ore giant – some 12% lower than the company’s current share price.

Other iron ore miners, such as BHP Billiton Ltd (ASX: BHP) and Fortescue Metals Group Ltd (ASX: FMG) have also suffered losses off the back of recent news flow – both falling 3.5% and 6.4%, respectively.

All said, Rio Tinto’s share price has still rallied 32% since January.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.