The Rio Tinto Limited (ASX: RIO) share price has started the week in positive fashion.
In early afternoon trade, the mining giant's shares are up 1% to $94.19.
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What's driving the Rio Tinto share price higher?
Investors have been bidding the Rio Tinto share price higher today despite iron ore prices ending the week with another decline.
According to CommSec, iron ore futures fell by US$1.89 or 1.8% to US$103.07 a tonne on Friday. This means that the price of the steel making ingredient lost US$10.69 or 9.4% of its value over the week.
Offsetting this has been a largely positive reaction from brokers to the miner's second quarter update at the end of last week.
What are brokers saying?
While consensus earnings estimates have been trimmed, the majority of the major brokers have reaffirmed their buy ratings.
For example, Citi has maintained its buy rating with a $120.00 price target, Goldman Sachs has held firm with its buy rating with a $124.10 price target, Macquarie has kept its outperform rating with a $120.00 price target, and Morgans has upgraded its shares to an add rating with a $113.00 price target.
In respect to the latter, Morgans is recommending "opportunistic accumulation on weakness."
Its analysts acknowledge that Rio Tinto is facing some major near term headwinds. However, it expects these to ease later in the year, making now the time to pounce.
Morgans explained:
Lower metal prices and cost pressures are powerful headwinds, but we see a better outlook for metals by late 2022 and heading into 2023 as Chinese growth starts to stabilise and recover. A short-term downgrade cycle for commodity forecasts could weigh on the stock in the meantime, but we would view this as presenting a longer-term opportunity given the resilience of strong cash flow.
RIO's flagship iron ore division is feeling pressure at both ends, with benchmark prices falling and costs continuing to rise. Still, it should see a better relative performance in the second half from increasing Gudai-Darri volumes and is still likely to generate substantial FCF and a healthy dividend.
