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Rio Tinto share price: what’s next after downgrading its iron ore shipments guidance

Rio Tinto's shares faced resistance and rebounded on Monday in spite of the lowered steel guidance last week. Investors wait and see as the firm will revise its unit costs mid-July in lieu of the smaller iron ore volumes.

Anglo-Australian iron ore mining firm Rio Tinto cut its guidance for iron ore shipments from the Pilbara region of Australia last week, citing “operational challenges”.

Last Wednesday, the mining firm’s shares were among the worst performing blue-chip stocks in London after the firm cut its production guidance for its iron ore.

The world's second-largest iron ore producer said it reviewed its mining plans due to the “operational” challenges it had been experiencing at the Greater Brockman hub in Western Australia. The group lowered its production of steel guidance from the earlier prediction of between 333 million and 343 million tonnes of iron ore to between 320 million and 330 million tonnes.

Earlier in April, the firm had also cut its 2019 production estimates after reporting a 14% fall in quarterly iron ore shipments due to disruption caused by a cyclone that hit Western Australia in March.

Rio Tinto shares face resistance in spite of lowered guidance: Technical view

Shares of the group rose by 1.31% on Monday following the group’s forward plans to revise its iron ore unit costs in lieu of the production revision.

The group’s shares in London gained by 1.31% or 61.50 pounds to close at 4,751 pounds per share on Monday.

Rio Tinto Limited's’s shares in Australia meanwhile rose by 1.23% or S$1.25, to A$102.98 as of 12.17pm Australian time on Tuesday.

Shares in the London listed Rio Tinto had recently hit its highest level in more than 10 years, with its shares reaching a high at 4,906 pounds on June 19, 2019, the highest prices since June 2008.

Prior to 2008, the last time prices peaked was in February 09, 2011, where it reached 4,718 pounds per share. Early this year, Rio Tinto shares exceeded the 4,600 resistance level to hit 4,604 pounds on April 1, 2019, and continued its ascend in prices.

Unit costs to be reviewed with steel volume changes

The firm has previously targeted its product unit costs at around US$13 per tonne for this year, but said that due to the change in volume guidance, unit costs will be updated on July 16, 2019, when the firm reviews its second quarter operations.

A share price reaction is expected next month when the firm revises its unit cost price.

Weakness in iron ore prices expected in the short-term

Some short-term weakness is expected in iron ore prices due to Rio Tinto’s guidance announcement. But as port inventories continue to fall, prices are expected to go higher in the next few months, said experts.

Iron ore prices have risen sharply this year, supported by supply disruptions and record steel production in China.

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