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Rio Tinto Limited shareholders: Look away now

Credit: iStock

Rio Tinto Limited (ASX: RIO) shareholders, look away now…

Source: Google Finance

Source: Google Finance

Overnight, London-listed shares of Rio Tinto plummeted 8.1% following the release of poor economic data out of China.

China is Rio Tinto’s number-one customer, accounting for a huge 41.3% of its sales revenue. Indeed, the miner is heavily reliant upon China’s infrastructure investment to drive demand for iron ore and coal (both steel-making ingredients), aluminium and copper.

Over the past year, as new production came online and supply of these key commodities soared, BHP Billiton Limited’s (ASX: BHP) and Fortescue Metals Group Limited’s (ASX: FMG) share prices fell by the wayside. Meanwhile, Rio Tinto’s share price has fared very well – falling ‘just’ 20% over the past year.

However, the data from China overnight revealed a 1.8% fall in exports and 10.9% fall in imports during the month of April. Economists polled by Reuters expected falls of 0.1% and 5% in exports and imports, respectively.

What does it all mean to Rio Tinto?

As the Chinese economy transitions from infrastructure-led to consumption-based, the recent falls in manufacturing and trade data will have investors questioning the strength of demand for commodities. Of course, there will always be some demand for Rio Tinto’s key products, but the structural level of demand could fall.

Foolish takeaway

Rio Tinto’s share price has — so far — waded through falling commodity prices quite well. However, if the supply-demand imbalance continues to worsen commodity prices will likely resume their falls and put more pressure on the miner’s share price.

I wouldn’t want to be holding Rio Tinto shares at this time.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

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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