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Rio Tinto Shares down 2% On Production Update – Why?

Tim Worstall
Tim Worstall trader
Updated 20 Apr 2022

Buy Rio Tinto Shares Your Capital Is At Risk

Key points:

Rio Tinto (LON: RIO) shares are down 2% or so this morning on the back of the first-quarter production report. That production report is a bit of a mixed bag which might explain that decline in the share price.

Iron ore production in the Pilbara is down 15% over Q4, which is not a good look. Perhaps worse is that shipments are also down by the same amount. On the other hand, copper production is up 4% year on year, even if down 5% q on q. Titanium dioxide slag is up 20% YoY, but then that’s a fairly low-value item, even if it’s in vast volumes.

It is that mixed bag thus the rather muted reaction perhaps. Much of the rest of the announcement is things we already knew. The strike at Kitimat was always going to reduce aluminium production and it has. The reworking of the Oyu Tolgoi project, largely taking out Turquiose Hill and increasing payments to the Mongolian government had already been announced.

Also Read: The Best Copper and Mining Stocks to Watch in 2022

We also already knew about the Serbian lithium project. Also, the replacement in the portfolio with the Argentinian brine operation at Rincon.

So, near all that was revealed about first-quarter production was already known. Perhaps a few details, precise numbers revealed, but the general outline was already well trailed. What matters rather more is the predictions for this year’s output. As ever, this is new information and it’s new information that moves share prices.

Here the news is equally boring if we’re honest about it. Iron ore shipments might be up a few percent. Refined copper output up 15% maybe. In fact, other than that refined copper it looks like simple organic growth – and not much of it – across the portfolio.

This means that we’re not to look to much happening internally to determine the Rio Tinto share price. What matters, the big influence, is going to be market prices for the output, therefore.

What’s this year’s copper price going to be? What’s that landed China iron ore price – the major determinant of the value of that Pilbara mining – going to be? That is, it’s what the global economy is going to do that matters, not the management of the internal processes at Rio.

We can also be more precise here, for both that iron ore – obviously – and copper price depends on views of the Chinese economy. The current lockdowns mean that this year might not be all that successful there. If that’s true, then we might expect weakening of global commodity prices.
Exactly what those future commodity prices are going to be is, of course, unknowable. But that is the major likely determinant of the RIO price moving forward. Simply because, as this production report and forecast shows us, there’s no very great change going on internally at Rio Tinto.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.