The Rio Tinto Limited (ASX: RIO) share price has drifted lower in recent times. This comes following tough trading conditions for the mining giant, particularly with the plunge in iron ore prices.
At Friday's closing bell, Rio Tinto shares finished the day 0.83% higher at $90.25. Despite the uplift, its shares have sunk close to 10% since this time last month.
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What's dragging Rio Tinto shares through the mud?
Investors have been selling off Rio Tinto shares following the mining giant's third-quarter results released in mid-October.
Rio Tinto advised it had another difficult 3-month period as it struggled to deal with COVID-19 challenges.
Operationally, Pilbara iron ore shipments grew just 2% to 83.4 million tonnes over the prior corresponding period (Q3 FY20). Other commodities such as bauxite, aluminium, mined copper, titanium dioxide slag, and iron ore pellets and concentrate all dropped production targets.
Most notably, iron ore – the primary force fuelling Rio Tinto's growth — saw its price recede in the second half of 2021.
In May, the steel-making ingredient reached an all-time high of US$229.50 per tonne. The Rio Tinto share price accelerated on the back of bumper revenues over the period.
However, a slowdown in Chinese demand amid political pressure has led iron ore prices to tumble. Currently, iron ore is fetching US$92.01, a drop of 43% since the start of the calendar year.
Chinese lawmakers introduced new rules for its steel producers in an effort to curb reliance on Australian iron ore. Steel mills were instructed to limit 2021 output to no more than 2020 levels, or face penalties. This is seen as an effort to curb reliance on Australian iron ore, and boost domestic supply and demand.
China wants its steel industry to halt iron ore production at roughly 1 billion tonnes for 2021. Consequently, Chinese crude steel production has dropped 13% in August, 12% in September, and 21% in October – the biggest amount since March 2018.
China has also increased its efforts to close down some domestic factories to achieve carbon reduction targets. In addition, the country is seeking alternative resources to maintain production.
What do the brokers think?
A number of brokers weighed in on the Rio Tinto share price after the release of its latest performance report.
Analysts at Goldman Sachs cut its price target by 1.1% to $121.00. UBS had a more bearish tone, reducing its outlook by a sizeable 6% to $79.00.
International investment firm Credit Suisse dropped its rating by 3.6% to $106.00. Based on the current share price, this implies an upside of around 17%.
Rio Tinto share price snapshot
A challenging 12 months has led the Rio Tinto share price to fall almost 10% and this year to date it's down by more than 20%. Its shares have steeply declined since the release of its FY21 half-year results in late July
On valuation grounds, Rio Tinto commands a market capitalisation of roughly $33.50 billion, and has approximately 371.22 million shares outstanding.
