Rio Tinto Stocks Weaken after Iron Ore Rout

Rio TintoThe stock of Rio Tinto Plc lost approximately $1 Billion or 5% of its market capitalisation and closed at $38.94 last week. No prizes for guessing the same. The iron ore prices fell below $70 per tonne.

It gave a clear opportunity for the punters to hammer the Tinto’s stocks which are the world’s largest iron ore miner. According to some optimists, the raw material for steel industry is likely to recover sharply soon.

But we certainly don’t think so. We firmly believe that iron ore prices, as well as the stocks of Rio Tinto, will dip further below and the reason for the same is discussed below.

In the last week, there was a free fall of 8.5% to $68.04 per tonne in the prices of 62% pure iron ore. This is the lowest realised price since November 2016. The extent of the decline can be realised from the fact iron ore prices reduced to about 28% from a high figure of $94.86 per tonne in February. According to the analysts, the decline is far from over. It might take several months before a majority of stockpiles at Chinese ports are used by the steel mills.

Rio Tinto

There is also a slight possibility of an increase in demand. The increase in demand for iron ore is directly connected with the construction activities. To avoid the overheating of the economy, the Chinese government has recently brought another round of lending restrictions. This is likely to affect the construction activities in approximately 20 cities. According to the Vice Chairman of China Iron and Steel Association (CISA), Li Xinchuang, steel demand is expected to dip low because of decline in the construction activities.

Freeport-McMoRan in Indonesia is facing problems in the export of copper concentrate because of the new regulations and restrictions imposed by the government. Rio Tinto that owns a stake in Grasberg mine (gold and copper) of Indonesia is negotiating with Freeport-McMoRan and the government to fix the problem. The stake allows Rio Tinto to claim up to 40% of production beyond specific levels till 2021 and 40% of the entire output after the end of 2021.

The Australian Taxation Office has levied a fine of $379 million plus $68 million to Rio Tinto for a period between 2010 and 2013. The demand was raised based on assessment related to transfer pricing of commodities to the hub of Rio Tinto in Singapore. The company has assured to pay 50% of demand. The company paid $3.3 billion to the Australian government in the form of tax and royalties out of $7.1 billion tax paid in the year 2014.

If you look at the price chart, you will find that stock has broken the primary support at 41. Also, the stock has fallen below an average of 50 days. The declining stochastic oscillator shows the weakness in the stock. Hence, a downward trend in the stock prices of Rio Tinto can be readily anticipated in the coming times.

Rio Tinto Stock Price April 17th, 2017

Rio Tinto Stock Price April 17th, 2017.

As a binary trader, you need to BUY a PUT Option contract to benefit from the downward trend and select the validity period of one week. You may have good chances of winning if you place the trade when the stock is around $40 in New York Stock Exchange.

Rich Archer

Rich Archer

Hi, my name is Rich Archer. I am living in London. Welcome to Binary Manual. Reach to Binary Options broker reviews and market news here.


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