Shares of Rio Tinto Limited (ASX: RIO) have rocketed higher today, following an impressive rally for the miner's London-listed shares overnight.
Rio Tinto's share price has been on a rollercoaster ride over the past two years. The shares endured a sharp plunge over the course of 2015 and bottomed out around $36.50 in February, but have rebounded strongly in the time since. The shares have risen 2.9% today to trade at $62.62, after rising 6.7% in London during the latest session.
The surge comes after a sustained climb in the price of iron ore, of which Rio Tinto is one of the world's biggest producers. The resource flat-lined earlier in the year, with expectations of further falls, but has since more than doubled in price.
It was up 3.2% overnight, according to The Metal Bulletin, and is now fetching more than US$82 a tonne. It's now at its highest level in more than two years.
The Australian Financial Review attributed the overnight hike to signs of a strengthening Chinese economy as well as concerns over tightening supply. It also noted that the Hebei government had ordered an investigation into the quality of production at several induction furnaces within the province, helping to push the price higher.
The BHP Billiton Limited (ASX: BHP) share price has also benefited, as have shares of Fortescue Metals Group Limited (ASX: FMG). The pair have risen 1.4% and 4%, respectively.
Should you buy Rio Tinto shares?
Mining shares have certainly bounced back over the past year. More recently, many have also benefited from the so-called 'Trump Trade', based on the belief that US President elect Donald Trump will invest heavily in infrastructure, requiring more resources such as iron ore and coal.
Mining investors have certainly regained their excitement in recent times, and it's easy to see why. But the problem is, much of this is based on speculation right now. What a Donald Trump presidency will look like is still unclear: it isn't even certain which of his campaign promises he will actually live up to during his term, which begins late in January 2017.
Mining shares, including Rio Tinto, could well climb higher from their current levels. But many within the industry agree that the magnitude by which iron ore has climbed over the past year is not fundamentally supported and consequently believe that iron ore will retreat from its current level – perhaps significantly.
If that does happen, Rio Tinto shareholders could be in for a very rude awakening.
