3 reasons why Rio Tinto Limited’s shares are sinking today

The falling iron ore price may not break Rio, but it sure will put a dent in the company’s profits

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The S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is down 0.3% in late afternoon trade, dragged down by the big miners Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP).

At the time of writing Rio’s share had fallen below $60 to $59.25, a drop of 1.4%, while BHP Billiton was down 0.8%.

It seems resources stocks across the board are getting hit, with Iluka Resources Limited (ASX: ILU), losing 2.8%, while another iron ore miner, Fortescue Metals Group Limited (ASX: FMG) is also down 2.8%.

Here are three reasons why Rio is getting hammered…

1)      A falling iron ore price. Iron ore continues to slide, losing another 1.1% to trade at US$95.70 a tonne overnight. Massive increases in iron ore supply has led to a record stockpiles of the ore in Chinese ports, while falling steel prices have dampened demand for its key ingredient. Add in Chinese government moves to fix their pollution problems and steel mills across the country are being shut down.

2)      Not content with producing ore from the Pilbara in Western Australia, Rio is looking to develop the multi-billion dollar Simandou iron ore project in Africa, which could further impact the supply of iron ore. Rio faces a massive bill to get the project to into production.

3)      Rio also faces falling and low copper and uranium prices, although 90% of the group’s earnings come from iron ore.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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