Why the Rio Tinto (ASX:RIO) share price underperformed the materials sector over the last 3 months

About Latest Posts Brendon LauBrendon's passion for shares started by accident in 2003 and he has worked in various roles …

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The Rio Tinto Limited (ASX: RIO) share price is struggling to keep up with its peers. But there are early signs that it's finding its feet.

Shares in the ASX iron ore miner plunged around 30% in the past three months when the S&P/ASX 200 Materials (INDEXASX: XMJ) index fell by less than half that.

The collapse in the iron ore price is weighing heavily on Rio Tinto. The miner also hasn't helped itself when it downgraded its production guidance – yet again!

Iron ore drags the Rio Tinto share price into a bear market

It's not alone in the sin bin of course. The BHP Group Ltd (ASX: BHP) share price isn't faring much better and the Fortescue Metals Group Limited (ASX: FMG) share price has slumped even more.

Iron ore accounts for just about all of Fortescue's revenue. At least BHP and Rio Tinto have exposure to other commodities that are faring better.

This explains why the broader sector is holding up better than the iron ore producers. Some commodities are in hot demand, such as lithium.

ASX mining shares that have been outperforming

This is why the likes of the Orocobre Limited (ASX: ORE) share price and Pilbara Minerals Ltd (ASX: PLS) share price have helped offset some of the ASX materials index's losses.

The index is also supported by gold shares as the safe haven commodity finds renewed support. Worries that inflation will get the better of central banks is driving interest in gold. That's great news for the likes of the Newcrest Mining Ltd (ASX: NCM) share price.

Is the Rio Tinto share price at a turning point?

However, there are tentative signs that the Rio Tinto share price may be close to bottoming. Its shares have jumped 1.7% to $89.03 this morning even as the commodity dipped below US$90 a tonne.

Despite the ongoing weakness in the price of the steel-making mineral, some experts think the worst could be over. The commodity may even stage a rebound in December.

Markets are nothing if not forward-looking. Bargain hunters are also getting excited after the Rio Tinto share price shed more than a third of its value in three months.

Value emerging

Even if the iron ore price were to settle around US$80 a tonne over the longer term, analysts reckon the miner can still pay a very generous dividend.

This is because it only costs Rio Tinto around US$15 a tonne for iron ore. The margins the miner makes would make any monopoly business green with envy.

Outlook starting to shine

But there is another tailwind that could draw investors back to the Rio Tinto share price. This is aluminium. The outlook for the metal is bright and Rio Tinto provides great exposure to that thematic.

This isn't to say that ASX iron ore miners are out of the woods. If China can't contain the fallout from its property sector, its economy could take a big blow.

That won't be good for our economy, let alone the Rio Tinto share price.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Fortescue Metals Group Limited, Newcrest Mining Limited, Orocobre Limited, and Rio Tinto Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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