Let’s take a closer look.
The post Rio Tinto (ASX:RIO) share price craters as iron ore hits US$100 a tonne appeared first on The Motley Fool Australia. –
The Rio Tinto Limited (ASX: RIO) share price has slipped firmly into the red as we commence the week’s trading today.
Rio shares are now changing hands at $93.58, a 5% drop from the open, and a further 12% decrease over the last week.
Rio’s share price is swimming in a sea of red, so let’s investigate further.
What’s up with the Rio Tinto share price lately?
The Rio Tinto share price is likely tanking on the back of a downward spiral in the price of iron ore, that has spurred on since July. Take one look at iron ore’s chart, and you see it’s on a bee-line straight to the south pole.
The spot price of iron ore has come down 53% since mid-July from highs of around US$222/Tonne (T), and now trades at US$104.50/T. That’s an even further 8% drop on the day.
Prior to this, iron ore went on a steep run from November 2020, to fetch a record high of US$230/T in May 2021. However, the recent drop is now well below the lowest price levels seen since August 2020 – and the trend is continuing.
What’s causing this rapid selloff in the iron ore markets? It appears to boil down to steel production curbs imposed from the worlds biggest steelmaker, China, that started back in 2020 and have continued to date.
There are a number of instigators of this policy, most notably to curb CO2 emissions. However, the most recent downstep in production came from a sharp downturn in the Chinese property sector (including the largest property developer Evergrande facing a default on its US$300 billion in debt), which has flowed through to steel demand.
Aside from this, the recent push away from fossil fuels and carbonisation towards renewable energy has weighed in on steel and iron ore production.
Iron ore miners are also withholding on new explorations, and divesting away from traditional operations into “green” alternatives.
Rio Tinto is in a unique position, in that it is an ASX resource share that produces a commodity. In that sense, its share price is expected to fluctuate with this kind of volatility in the broader commodity markets.
Given this relationship, and the fact the price of iron ore has decreased by around $120 since July, it starts to make sense why the Rio Tinto share price is trading down today.
Investors continue selling Rio’s shares to avoid catching the falling knife – as such, the Rio Tinto share price is down 13% over the last month as well.
Rio Tinto share price snapshot
The Rio Tinto share price has had a horrendous year to date, posting a loss of 18% since January 1. This extends its loss over the past 12 months to 7%.
Both of these results have lagged the S&P/ASX 200 index (ASX: XJO)’s return of around 25% over the past year.
Should you invest $1,000 in Rio Tinto right now?
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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.