The Rio Tinto Limited (ASX: RIO) share price finished well in the red on Thursday. At the final bell, Rio Tinto shares were changing hands for $105.50 apiece, a fall of 2.47%.
In fact it's been a difficult time for the Rio Tinto share price lately, having seen a number of headwinds from the commodity markets.
Whereas the S&P/ASX 200 Index (ASX: XJO) has slipped 2.3% into the red over the last month, Rio shares have tanked 19%.
What's up with the Rio Tinto share price today?
The decline in the price of Rio Tinto shares is correlated to a decrease in the spot price of iron ore per tonne.
The spot price of iron ore peaked in May at around US$228/tonne, and roughly held that level until July.
However, since August, Iron Ore spot has made a significant downward move. It has given away US$96 a tonne (T) and now trades at US$132.50/T. This marks the lowest price level since December 2020.
One major reason for the significant price decrease is supply curbs that have been imposed on steel production in China.
For instance, the Chinese city of Handan recently implemented restrictions on steel production after seven other provinces were "told to limit their production to 2020 volumes" by Chinese authorities. These restrictions are apart of China's efforts to control carbonisation and reduce carbon emissions.
Rio Tinto is also considered a "price-taker", given that it is an ASX resource share that produces commodities.
As such, its share price can fluctuate with the volatility in the broader commodities markets. This relationship generally has a lag, usually of a few days to a few weeks.
The iron ore spot price started to trade down on July 2020. We can see the Rio Tinto shares started to decrease from 4 August, roughly 2 weeks afterwards.
Rio's shares haven't made a recovery since, and are down a further 3% on the week. This coincides with the price of iron ore/T.
What's next for Rio Tinto?
We can also gauge some insight into the expectations of the price of iron ore in the future, by going to the futures markets. These are contracts on assets, such as commodities, that investors use to protect against price movements, or speculate on them.
Looking at the futures contract on iron ore expiring in October on the CME futures exchange, one sees they currently trade at $130/T, indicating the market expects the price of iron ore to decrease further in the near future.
This may be a point that continues to weigh on the Rio Tinto share price moving forward.
Foolish takeway
Rio Tinto shares are sliding today in continuation with a longer-term trend. This trend is associated with the market price of iron ore, which has been decreasing since July.
Rio's share price has a unique relationship with the price of iron ore in that it is a commodity producer, and therefore it is associated with price fluctuations in these markets.
