In the past two years, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has climbed just 9.9%.
The S&P/ASX 200 excludes dividends.
Nonetheless, a 9.9% return from stocks over two years is poor. Especially when the added risk of holding shares is factored in.
However, Rio Tinto Limited (ASX: RIO) has performed even worse – underperforming the market by 2% over the same period, returning just 7.8%.
Zooming out a little, over five years, it's underperformed by 36%!
It's true Rio Tinto is the world's leader in low-cost iron ore production.
After Brazil's Vale, it's the largest producer.
It also has world-class assets in aluminium, copper, coal, uranium, diamonds and bauxite.
Unfortunately that hasn't stopped its share price sliding.
Indeed, as I noted here, except diamonds and bauxite, the market prices for most of Rio's major commodities are under pressure.
For example, China is the largest producer and consumer of coal. It accounted for half (49%) of the world's consumption in 2011.
Whilst rising energy demands are an important consideration to the Chinese economy, LNG and other 'cleaner' fuels are becoming increasingly sought after to combat further degradation to the environment.
This will likely see pressure on coal prices remain for some time, in my opinion. I'd avoid investing in coal miners like WHITEHAVEN COAL LIMITED (ASX: WHC) and New Hope Corporation Limited (ASX: NHC).
Coal aside, China is currently forecast to account for 47% of world steel consumption in 2015. Of which, 48% goes to China's residential housing market.
Iron ore (which accounted for over 90% of Rio Tinto's financial year 2014 profits) is a key steel making ingredient. But despite falling heavily in price since the beginning of 2014, the iron ore spot price is forecast to continue falling in value over the medium term.
According to the Australian Bureau of Resources and Energy Economics, the copper market is expected to enter surplus in 2015 and prices are forecast to fall steadily in coming years.
Aluminium prices are forecast to appreciate modestly out until 2020. However it accounted for just 24% of Rio Tinto's FY14 revenues.
Buy, hold or sell?
Despite Rio Tinto's share price underperforming the market over the past one, five and 10 years; trading on a trailing dividend yield of 4.7% fully franked, and boasting a PE ratio of just 11x investors are reminded to look at the underlying economics of the market Rio operates in before purchasing shares.
Indeed, with China's demand for many commodities set to wane and miners all over the globe ramping up production, the future outlook for commodity prices and producers like Rio Tinto and Fortescue Metals Group Limited (ASX: FMG) appears uncertain.
Therefore, they do not appear to be bargains at today's prices.
