The Rio Tinto Limited (ASX: RIO) share price has slid further today. Disappointingly, this takes the mining giant’s performance since the beginning of the year to negative 23%.
Despite growing its revenue and earnings at a substantial rate in the last financial year, the market is punishing this resource company. But, what has led to this downfall in investor sentiment? Especially when the performance metrics have been humming along.
A rocky year for the Rio Tinto share price
If we had been analysing the mining company’s share price performance back in early August, it would be a completely different story. At that point in time, shares were going for between $130 to $135 on the ASX, which was approximately a 15% increase from the beginning of the year.
Prior to August, there was a sense of euphoria in the markets towards iron ore producers. The price of the steel-making commodity was reaching new heights as China’s demand seemed insatiable. Yet, it all abruptly came to a screeching halt as China imposed shutdowns to curb emissions and reduce energy consumption.
Following this move, the price of iron ore quickly imploded, tumbling from roughly US$220 per tonne to US$115 in less than 2 months. Unsurprisingly, this shook investors of iron ore producing companies such as Rio Tinto, BHP Group Ltd (ASX: BHP), and Fortescue Metals Group Limited (ASX: FMG).
The reason why the market’s attitude towards the mining giants swiftly changed is largely due to how the commodity’s price impacts the company’s revenue and earnings. While the cost part of the process stays relatively the same, the reduction in sale price means less realised income for every tonne produced.
What about now?
Unfortunately, the outlook isn’t much better in the near term for iron ore prices. According to Reuters, iron ore futures slumped to nearly a 1-year low of US$93.75 a tonne. This stems from continued steel production controls.
Affected by heating season and winter Olympics (controls), molten iron output is hard to increase and could stay weak in the short-to-medium term.
In turn, the Rio Tinto share price and other mining companies are weakening further today.
The post Here’s why the Rio Tinto (ASX:RIO) share price is down 23% so far in 2021 appeared first on The Motley Fool Australia.
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Motley Fool contributor Mitchell Lawler has no position 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.
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