Rio Tinto (NYSE:RIO) revealed on Tuesday that its third-quarter iron ore shipments declined from last year, despite a rise in production. Moreover, the mining company also lowered its annual refined copper production guidance amid rising costs.
The annual iron ore deliveries fell 1% in Q3 despite recording a 1% increase in production, on a year-over-year basis. For 2022, Rio now projects iron ore shipments to be limited to 320 million tonnes, which is the lower end of the previously guided range of 320-335 million tonnes. Also, annual cost estimates for copper now fall in the range of 150-170 cents per pound, up from the initial guidance of 130-150 cents a pound. Not only that, but Rio also cut its annual refined copper production expectations to 190,000-220,000 tonnes, from 230,000-290,000 tonnes.
The primary spoilsport is the weakness in global demand for metals, especially in China, which is one of the largest customers of metals. Incidentally, steel production in China and Europe decreased due to a mounting supply surplus. The weakness in demand has led to a drop in iron ore prices to such an extent that iron ore prices are on track to close the year at their lowest level in three-four years.
Moreover, the surging cost of production is an added woe that Rio has been struggling with. These headwinds are affecting the company’s dividend payout as well, and Rio’s reduction of the interim dividend payout by more than 50% in July attests to that.
However, looking at iron ore shipments on a quarter-over-quarter basis, there was a 4% increase in Q3 despite two unplanned rail disruptions on the Yandicoogina and Gudai-Darri lines. This made several analysts believe that iron ore demand may be recovering slowly.
What is the Target Price for Rio?
The average target price for Rio stock stands at $68.83, which indicates a 25% room for stock appreciation over the next 12 months. Wall Street analyst consensus is cautiously optimistic about RIO stock, with a Moderate Buy rating based on one Buy and two Holds.
