Rio Tinto’s Not Exactly Dancing On The Sand

Rio Tinto’s Not Exactly Dancing On The Sand
Daniel Johnston

4 months ago1 min

What’s going on here?

Rio Tinto, the mining heavyweight, reported its earnings on Wednesday – and they’re not likely to have investors throwing a beach party.

What does this mean?

The global economy’s been slowing down lately, and Rio Tinto is feeling the effects. See, profit’s on a downward slope, and that’s not just a hiccup. When the economy’s in a funk, construction projects get put on the back burner, and industrial production slows down – meaning that demand for Rio’s mainstays (like iron ore, aluminum, and copper) takes a hit. That leads to lower prices – so, combined with higher costs, it’s no wonder Rio’s announced its lowest first-half profit in three years. And that poor performance, plus a dividend cut, meant that shares took a hit when the news broke.

Rio Tinto stock
Source: Google Finance

Why should I care?

The bigger picture: Steel yourself.

The global slowdown isn’t doing Rio any favors, but the real thorn in its side is China. See, Rio’s profit is heavily tied to iron ore, a key material in steel production, and China’s property sector – a massive end market for the metal – is in a serious slump. But there might be light at the end of the tunnel: China recently pledged to roll out policies to boost growth, and the property sector’s a key priority – which could give iron ore prices a much-needed lift.

Zooming out: All talk, no action.

In a bit of an “oops” moment, Rio confessed it’s set to miss its 2025 decarbonization target, blaming shifting production priorities and mismatched timelines. But companies everywhere are setting lofty targets, and Rio isn’t likely to be the last to miss them. After all, Accenture reckons that almost all firms are on track to miss their net-zero goals unless they speed up dramatically.

Net zero targets
Source: Accenture


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