With Iron Ore Price Dropping 35%, How’s Rio Tinto Stock Faring?

by Trefis Team
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Rio Tinto stock (NYSE: RIO) has dropped more than 11% in the last one month and currently trades at $76 per share. The recent drop in the stock has been driven by a sharp decline in global iron ore prices. Iron ore price per dry metric ton dropped almost 35% from more than $220 in July 2021 to less than $145 at the beginning of September 2021, mainly due to lower imports by China following its move to control steel production to meet carbon emission norms. China had asked 20 steel mills in Tangshan city to suspend operations for a week in August in order to reduce emissions as the Chinese steel sector makes up 15% of the country’s total carbon emissions. Also, China’s iron ore imports dropped to 88.51 million metric tons in July 2021 compared to 89.41 million metric tons in June 2021. This was much lower than the 102.1 million metric tons recorded in March 2021. With efforts to control steel production, the demand for the key raw material – iron ore – from China has been hit severely leading to a sharp drop in price levels. However, there has been a slight recovery with Chinese iron ore imports coming in at 97.5 million metric tons in August 2021.

But, after the recent decline, will RIO’s stock continue its downward trajectory over the coming weeks, or is a recovery in the stock more likely? According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, returns for RIO stock average more than 7% in the next three-month (63 trading days) period after experiencing an 11% drop over the previous one-month (21 trading days) period. The stock has more than 70% probability of rising over the next three months. But how would these numbers change if you are interested in holding RIO stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test RIO stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF RIO stock moved by -5% over five trading days, THEN over the next 21 trading days, RIO stock moves an average of 2.7 percent, with a 57% probability of a positive return.

Some Fun Scenarios, FAQs & Making Sense of RIO Stock Movements:

Question 1: Is the average return for Rio Tinto stock higher after a drop?

Answer:

Consider two situations,

Case 1: Rio Tinto stock drops by -5% or more in a week

Case 2: Rio Tinto stock rises by 5% or more in a week

Is the average return for Rio Tinto stock higher over the subsequent month after Case 1 or Case 2?

RIO stock fares better after Case 1, with an average return of 2.7% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of -0.6% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Rio Tinto stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Rio Tinto stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For RIO stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.

RIO’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Rio Tinto stock by changing the inputs in the charts above.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market since 2016.

 

See all Trefis Price Estimates and Download Trefis Data here

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