Rio Tinto delivered a strong Q4 update last week with iron ore shipments and production both up. Nor was Rio Tinto alone, with rival BHP also reporting an uplift in production. However, Rio Tinto struck a cautious note when it came to the reopening of its biggest customer’s economy.
Rio Tinto [RIO.L] ended 2022 on a high after it delivered strong Q4 results, with iron shipments up 5% quarter-on-quarter and 4% year-on-year. Overall, Rio Tinto managed to shift 87.3 megatonnes (Mt) of ore, while production was up 6% quarter-on-quarter to 89.5Mt.
The world’s third-biggest miner benefited from improved performance at its Pilbara operations in Western Australia, where it achieved a record second-half performance across the mine and rail system. Rio Tinto said it expected its technologically advanced Gudai-Darri mine to reach its nameplate capacity on a sustained basis during 2023.
Iron ore portside sales in China were 4.8m tonnes in the fourth quarter, giving the company a total of 24.3m tonnes in 2022, up from 14m tonnes in 2021.
Rio Tinto struck a cautious note when it came to China, its biggest customer, pointing to near-term risks to the supply chain and labour as the country emerges from three years of lockdowns.
“Although more financing is being provided, consumers remain cautious of [China’s] property market. The country’s trade balance remains healthy, but slowing global demand poses downside risks to exports,” Rio said in the update.
What’s happening with Rio Tinto’s share price
Rio Tinto’s share price has rallied over 33% since 28 October, closing Friday 21 January at 6,213p. The stock is now within touching distance of its 52-week high of 6,343p, hit on 3 March in intraday trading. Since the start of 2023, Rio Tinto’s stock is up 7.2%. A major factor in the stock price momentum is optimism over the reopening of China’s economy.
Why China matters for Rio Tinto and its rivals
China is one of the world’s biggest iron ore importers. More than half of Rio’s products are sold into China. In the six months to 30 June 2022, China represented over 52% of Rio Tinto’s iron ore sales, worth around $15.5bn (the US was in second place, with a 16.3% share of sales). However, the country’s tough Covid-19 restrictions and a collapse in its property market have weighed on demand.
Rio Tinto’s CEO Jakob Stausholm told CNBC on 19 January that he was “optimistic” over the reopening of China and its effect on the world economy. Stausholm said the anticipation was already being felt in the markets, pointing to higher commodity prices. The iron ore price hit $124.5 per tonne on January 20, up from levels of around $81 in October.
Rival miner BHP [BHP] posted better-than-expected quarterly iron ore shipments in its own interim results, published last week. BHP described China as a “stabilising” influence on commodity demand in 2023.
“China's pro-growth policies, including in the property sector, and an easing of Covid-19 restrictions are expected to support progressive improvement from the difficult economic conditions of the first half," BHP said.
Like Rio Tinto's, BHP’s share price has been gaining traction of late. Since the start of 2023, the stock has gained 7.9%.
The reopening of China’s economy has the potential to benefit both Rio Tinto and BHP. More iron ore imports will lead to higher revenues, even if there could be short-term problems in the supply chain.
Longer-term, Rio Tinto is pivoting to commodities needed for future technologies, such as copper and lithium, which are used in the manufacture of electric vehicles (EV).
In the Q4 results, Rio Tinto noted that the EV market continues to experience strong growth, supported by China, as lithium carbonate prices remain elevated on the back of strong global demand. The miner added that there could be short-term uncertainty as the economic outlook dampens peoples discretionary spending.
Rio Tinto also benefited from a 10% rise in copper prices in the fourth quarter, to $3.80 per pound, as market sentiment turned more positive, with price support coming in the form of Chinese government policy changes.
The next key date for investors interested in Rio Tinto is 23 February, when the miner publishes full-year 2022 results.
Of the 20 analysts polled by the Financial Times, Rio Tinto has a median price target of 5,996.05. Hitting this would see a 3.5% downside on Friday’s close.