Rio Tinto share price stalls as Goldman Sachs lifts iron ore outlook

on Feb 20, 2023
  • Rio Tinto stock is loitering near its 2022 highs ahead of earnings.
  • Analysts at Goldman Sachs expect iron ore prices to rise.
  • Rio Tinto will publish its annual financial results this week.

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Rio Tinto (LON: RIO) share price is hovering near its all-time high as iron ore makes a comeback. The stock was trading at 6,124p in London, a few points below its record high of 6,347p. It has been one of the best-performing mining stocks in the FTSE 100 having jumped by ~43% from its lowest point in 2022.

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Goldman Sachs ups iron ore price forecast

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Rio Tinto, one of the biggest mining companies in the FTSE 100 index, could benefit from the strong performance of iron ore prices. According to Goldman Sachs, iron ore could do well in the coming months as the situation moves from a surplus to a deficit. 

In the report, the analysts said that iron ore prices could rise to $150 per tonne in the next three months. They then expect that prices will retreat to about $135 in the next six months as producers boost their output. Prices have already jumped by about 60% from their lowest level in October last year.

The main driver for the ongoing iron ore price surge is the ongoing China reopening. After its key industries closed in 2022, they have started reopening. As a result, the total onshore iron ore inventories in China have fallen by about 45 million tons and are at the lowest level since 2016

Still, iron ore faces significant challenges this year. For one, there are signs that the Chinese economy is not recovering at a faster pace than expected. At the same time, the property sector, which is a major consumer of steel, is still in trouble. Property starts have crashed to the lowest point in months.

Rio Tinto earnings ahead

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Rio Tinto is significantly exposed to iron ore since it is the second-biggest producer after Vale, the Brazilian company. This week, the stock will react to the company’s full-year results that are scheduled for Wednesday. Other mining companies like BHP are expected to publish their financial results. 

Analysts expect that Rio Tinto’s annual results will be strong, helped by the robust commodity prices in 2022. In the most recent earnings, the company said that its EBITDA in the first half of the year came in at $15.6 billion. It also paid an interim dividend of about $4.3 billion. 

However, the company is expected to guide toward a slower dividend growth in 2023. Analysts have a mixed outlook for the stock. BNP Paribas and CLSA downgraded the stock while Morgan Stanley and JP Morgan have an upbeat outlook for the stock. In my view, I suspect that the Rio Tinto share price will likely retest the key resistance level at 6,346p after earnings.

Rio Tinto share price
RIO chart by TradingView

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