Why did the Rio Tinto share price rocket 24% in November?

The Rio Tinto Limited (ASX: RIO) share price jumped 24% last month. This compares to a 6% rise for the S&P/ASX 200 Index (ASX: XJO).

It was a very strong performance by the ASX iron ore share, though it helped that it was starting from an extremely low point in terms of share price at the end of October.

The thing for investors to remember with a business like Rio Tinto is that its fortunes are highly linked to commodity prices. How much it can sell its production for can make a big difference to its profit, considering the costs to produce 1mt of iron ore don’t really change much month to month.

Iron ore price rises

According to reporting by the Australian Financial Review, the iron ore futures in Singapore went above US$100 last week.

The apparent thinking behind the rise for investors is that China seems to edging closer to abandoning its COVID zero policies.

As reported by Reuters, COVID testing booths in Beijing have been removed and Shenzhen residents won’t need to present a negative test result to travel or enter parks, despite COVID cases being close to their highest level in the country. The change for Shenzhen is after Chengdu and Tianjin have made similar moves.

People no longer need to present a negative test to enter places like supermarkets, though offices and other locations still require testing.

Reuters also reported that “China is set to further announce a nationwide easing of testing requirements as well as allowing positive cases and close contacts to isolate at home under certain conditions, people familiar with the matter told Reuters this week.” Before, the guidance was that people need to go to “central quarantine”.

However, the news organisation referred to “many analysts” that don’t think a significant reopening will come until at least after March as the country works on a vaccine effort targeting the elderly.

An open economy could mean more economic activity, stronger demand for steel and iron, and better profitability for the iron ore miners.

Can the Rio Tinto share price rise further?

Brokers have different views on the ASX iron ore share.

For example, UBS is currently neutral on the business. But, the price target is $90, which implies a possible reduction of around 20%.

Macquarie is another broker that is neutral on the business. But, with a price target of $94, this implies a possible drop of around 16%.

One of the more positive brokers is Morgan Stanley, which has a price target of $121 – this implies a possible rise of 8%.

The post Why did the Rio Tinto share price rocket 24% in November? appeared first on The Motley Fool Australia.

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More reading

• The iron ore price just posted its biggest-ever monthly gain. What’s going on?
• Brokers name 3 ASX shares to buy today
• Why Coronado, IDP, Mayne Pharma, and Rio Tinto shares are dropping today
• Why Appen, Evolution Mining, Rio Tinto, and Xero shares are racing higher
• Rio Tinto share price lifts despite lukewarm iron ore outlook

Motley Fool contributor Tristan Harrison 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 recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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