Rio Tinto shares hit by China growth forecast: buy the dip?

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on Mar 7, 2023
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  • Rio Tinto stock pulled back after China’s mild growth forecasts.
  • The country’s 5% growth target is significantly lower than estimates.
  • Rio Tinto settled with the US on corruption charges in Guinea.

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Rio Tinto (LON: RIO) share price pulled back sharply on Monday as the market reacted to China’s growth prospects. It retreated to a low of 5,920p, which was significantly lower than the year-to-date high of 6,396p. This price is about 40% above the lowest point in July last year. 

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Rio Tinto growth prospects

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Rio Tinto, one of the biggest mining companies in the world, has come under intense pressure lately. In February, the company was forced to slash its dividend, signaling that the commodity supercycle was nearing its end.

The company is also adjusting the challenges in China, its biggest market. As I wrote here, China announced that it hopes to grow its economy by 5% this year. Still, these growth prospects face significant challenges in 2023.

First, for decades, the property market was China’s power engine. Today, the industry is in decline, with Evergrande still in trouble. Therefore, unless the government implements stimulus, the sector could continue struggling for a while.

Second, the strong dollar could hit the country’s economy by making it quite expensive for exporters to buy goods from the country. The USD has jumped against most currencies, especially those in emerging markets.

Still, Rio Tinto could benefit from the rising iron ore prices. The price has jumped to $126 from last year’s low of about $83. Rio Tinto makes most of its money by selling iron ore. 

Another catalyst for the stock is the recent $15 million settlement with the US concerning bribery issues in Guinea. The company did not admit or deny the violations. Therefore, while the fine is not ideal, it means that the firm can now move on from the crisis. Most importantly, it can take advantage of Guine’s vast iron ore resources, which it believes are the “largest and richest untapped high-grade deposits in the world.”

Rio Tinto share price forecast

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Rio Tinto share price

RIO chart by TradingView

The daily chart shows that the RIO stock price has been in a strong bullish trend in the past few months. It has soared from last July’s low of 4,256p to a high of 6,000p. The stock has moved above all moving averages and is hovering at an important resistance level. This price coincided with the highest point on April 19. 

It has also moved above the 25-day and 50-day moving averages and formed what looks like a slanted triple-top pattern. Therefore, the stock could have a bearish breakout in the coming months as sellers target the neckline of this level at 5,564p.

Rio Tinto Mining Stock Market