Why is the Rio Tinto share price wallowing on Wednesday?

The Rio Tinto Ltd (ASX: RIO) share price has dropped into the red, down 0.18% at lunchtime.

The S&P/ASX 200 Index (ASX: XJO) iron ore miner closed yesterday trading for $114.10 with shares currently trading for $114.30.

The dip comes despite the iron ore price holding steady overnight, trading at just over US$110 per tonne.

So, why is the Rio Tinto share price wallowing today?

What are ASX 200 investors considering?

The Rio Tinto share price looks to be facing some headwinds on two fronts.

First, the miner’s stock has received downgrades from several major brokers.

JP Morgan is among those, as the broker downgraded a range of iron ore miners.

Rio Tinto saw its rating cut to underweight from neutral.

Commenting on the re-rating, JP Morgan analyst Lyndon Fagan said (courtesy of The Australian):

China reopening, whilst a clear positive for the space, now looks to be priced into many stocks already. China’s reopening appears to be a reality, but sentiment-wise, it’s also the consensus thinking.

Fatigue on this trade for the miners could start to set in soon, given strong recent performance. Many stocks have overshot on the upside, and the market could pivot back to global recession concerns in early 2023 or begin to worry about an interrupted/less aggressive China reopening.

The Rio Tinto share price also faces some pressure from UBS. The broker cut Rio stock to a sell rating, saying many ASX miners have seen their share prices rise faster than fundamentals dictate.

Those gains have come on the back of China’s reopening from three years of zero COVID policies. That’s seen iron ore price charge from US$82 per tonne in early November to today’s US$110 per tonne.

But UBS noted that iron ore stocks have “moved too far and too fast as the macro backdrop remains fragile, iron ore fundamentals weak and the stocks expensive at normalised commodity prices”.

What else is pressuring the Rio Tinto share price?

Just as Rio Tinto shares were boosted by investor hopes of increased iron ore demand from China as the nation reopens, the miner looks to now be under pressure amid concerns that China’s economy is due for the slowest growth in half a century.

Indeed, according to a Bloomberg economists survey, the Chinese economy is expected to grow only 3.2% this year.

The economists surveyed predict a large contraction in retail sales, slowing factory output and investment, and rising unemployment. That data should be released tomorrow.

Atop the slowing growth, there likely are also some market jitters around the rapid spread of COVID through China’s major cities, including Beijing. The surge in infections has triggered Chinese officials to delay the Central Economic Work Conference, which was meant to start this week.

Rio Tinto share price snapshot

As you can see in the chart below, the Rio Tinto share price remains a strong outperformer over the past 12 months, up 16%. Longer-term, shares are up 61% over five years.

The post Why is the Rio Tinto share price wallowing on Wednesday? appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Tuesday
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Motley Fool contributor Bernd Struben 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 Scott Phillips.

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