Can Rio Tinto (ASX:RIO) shares hit the AU$150 mark?

Summary

  • The commodity market was hit hard by the impacts of coronavirus in 2020.
  • Miners around the world have capitalised on the surging commodity prices after the ease in global lockdowns.
  • Rio Tinto has performed synchronously with iron ore prices, and the stock is poised to make new records.

COVID-19 has proved to be cataclysmic for the commodity market. The demand for commodities had plummeted to record lows due to extensive lockdown restrictions, which halted industrial operations and sapped commodities’ demand. The impact of infections was not just limited to the demand side, it also dug its deadly claws into the industry's supply side. The overall supply chain of the mining industry was affected by the fear of coronavirus. Mining operations were shut, and the supply was halted.

Source: © Kentoh | Megapixl.com

However, the blend of the global vaccination programs and multi-trillion-dollar stimulus packages have changed the scenario now. The prices of commodities have hit multi-year high levels. A rapid surge in demand for iron ore, copper and other base metals in the world's largest consumer, China, has lifted the commodity prices higher to pre-pandemic levels. Iron ore prices hit an all-time-high level of US$229 per tonne on 12 May, and copper prices hovered over US$4.9 per pound in the second week of May. With the prices of commodities on the rise, miners across the globe found a reason to rejoice.

Strong Relation between Iron Ore prices and Rio Tinto Earnings

Source: © Rbrucew | Megapixl.com

A rapid surge in commodity prices has provided an opportunity to all miners across the globe to capitalise on the rising demand in the post-pandemic economic recovery era.

The stock of the world's second-largest metals and mining company Rio Tinto (ASX:RIO) has gained more than 12.99% in the last three months, as of 18 June 2021.

Also Read: Which is bigger - BHP or Rio Tinto?

Source: Copyright © 2021 Kalkine Media | Data Source: Company Annual Report (FY20)

During FY20, the company's primary underlying earnings of 76% came from the iron ore business; the copper and diamond business contributed nearly 9% of Rio's underlying earnings, and 9% of earnings came from the company's aluminium business. So, one can clearly say that iron ore is the primary contributor to the company's business.

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Iron Ore prices in sync with Rio's share price

It seems like the stock of Rio Tinto has performed synchronously with the prices of iron ore. A clearer picture of Rio’s stock price performance and iron ore prices can be seen in the chart below.

Source: Eikon Refinitiv

The iron ore prices started skyrocketing in November 2020 on the back of China’s robust pandemic recovery. Additionally, US President Joe Biden’s US$2.0 trillion spending plan has also fuelled the iron ore price momentum lately. However, the iron ore prices cooled down recently in May 2021 after setting record highs as China decided to put a cap on surging commodity prices.

Must Read: Why are iron ore prices volatile of late?

Earlier in 2021, iron ore prices were weighed down by the Federal Reserve's monetary policy and uncertainty in the Chinese purchase. Meanwhile, after the Labour Day weekend in May, China’s demand for iron ore has surged to record highs, while on the other side, the country's determination to limit carbon emissions and become carbon neutral by 2060 has reduced the nation's iron ore imports, making iron ore prices more volatile.

Rio’s Performance

Rio's shares are trading near all-time high levels, with its price hitting AU$132.94 per share in May 2021. The miner has gained more than 25.84% in the last 52-weeks.

Source: Eikon Refinitiv

The shares of Rio have got strong support from the iron ore rally and were consolidating till the first quarter of 2020. The trendline followed an uptrend afterwards, indicating that Rio has made higher highs and lower lows.

The stock has got little resistance in the second quarter of 2021, primarily due to China's commodity price policy, but it is anticipated that if the stocks would cross the resistance level, the prices will rise further.

Good Read: Rio Tinto (ASX:RIO) appoints former Treasurer and Aboriginal affairs Minister to its board

With the coronavirus infection situation under control in China, the demand is expected to rise. Any change in iron ore prices may give a further boost to the RIO stock.

The stock has grown nearly 13% in the past three months despite a lot of hurdles in the way like Chinese commodity price curbs and environmental emission concerns. RIO needs additional 21.49% growth at the current share price of AU$123.47 to reach AU$150, which does not seem to be a very big deal as per the company's previous performance and iron ore demand outlook.


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