Why the Rio Tinto Limited share price is plunging

The Rio Tinto Limited (ASX: RIO) share price is collapsing. Under pressure from falls in key commodities like iron ore, coal, copper and gold, the $86 billion miner’s share price has lost 17.5% since the beginning of the year.

Unfortunately, it’s showing no sign of slowing down.

Source: Google Finance

Source: Google Finance

After staging a brief rally, Rio Tinto’s share price has fallen 10% over the past month, on the back of continued falls in iron ore, aluminium, coal and gold. The price of iron ore, Rio’s most lucrative commodity, has now dropped from over $US185 per tonne in 2011 to below $US45 per tonne overnight.

While Rio Tinto’s breakeven prices are some of – if not ‘the’ – lowest in the world, falling market prices will cripple profit margins and likely take the company’s share price lower.

Lower market prices are a result of China’s transition away from infrastructure investment towards consumption and a significant oversupply in the global steel market. It’s showing no sign of abating in the foreseeable future.

Buy, Hold or Sell?

Despite falling heavily over the past few years, I’m reluctant to believe Rio’s woes are over. I think the commodity glut could get worse before it gets better and there’d be no reason to rush out and buy shares of Rio, BHP Billiton Limited (ASX: BHP) or Fortescue Metals Group Limited (ASX: FMG) at this time.

Indeed, there are plenty of other, faster-growing, dividend stocks available on the ASX (such as the one below) at much more compelling prices.

A better buy than Rio Tinto

Rio Tinto shares may not be a clear-cut buy at this time, but that's okay because Scott Phillips, lead advisor of Motley Fool Share Advisor, has just announced his #1 dividend stock of 2015-2016 - and I think it is a GREAT BUY today! Best of all, for a limited time, Scott is giving away its name and stock code free in his brand-new investment report! Simply click here, enter your email address and we'll send you his report.

Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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