A plunging iron ore price caused pain for the Australian investors yesterday, with mining heavyweights dragging the index down by 2.1%. Today, the broad market appears to rebound from yesterday loss. At the moment of writing, the ASX is up by 1.6%.
The fall in the materials sector on Monday was affected by further slowdown risk in China steel production. What exactly drives the Iron Ore price? The Iron Ore prices crashed following weak Chinese demand. On top of that, China focuses on energy consumption and emissions targets. This involves China continuously cracks down on its industrial activity and reduce production aimed at lowering power usage.
Although these cuts might be just temporary until October 15, we believe that the demand for Iron Ore will only pick up in mid-December. Therefore, we could expect a rebound in the materials sector onward the month of December.
Furthermore, China’s second-largest property developer Evergrande has taken the spotlight this week following concerns that it may default on its US$300 billion debt burden. This headline could damage further commodities prices. hence, in terms of relevance to Iron Ore, the Chinese property and infrastructure sector account for 55% of its steel consumption.
Why Is RIO Tinto Share Price Dipping Today?
Accordingly, the Rio Tinto share price is likely tanking on the back of a downward spiral in the price of iron ore. In fact, the spot price of iron ore has come down 53% since mid-July from highs of around US$222/Tonne and now trades at US$104.50/Tonne. That’s an even further 8% drop on the day.
RIO shares are now trading at $95.88. It is more than 15% year-to-date. The Iron Ore giant share price is now trading 11% below its pre-COVID level.
Even though the recent turmoil on the Iron Ore market, we believe RIO is a fundamentally solid commodities giant. Thus, the group reported consolidated sales revenue for 1HFY21 of US$33.1 billion. That was up 71% from the prior corresponding period. Cash flow also leapt to US$10.2 billion, up 262% year-on-year.
Moreover, Rio declared an interim dividend of $3.76 per share, fully franked. On top of that, we are pleased to see a special dividend of US$1.85 per share, also fully franked.
Despite being affected by the Iron Ore recent volatility, RIO’s future is not dependent on Iron Ore alone. In fact, the group is diversifying its portfolio of export minerals.