Why is the Rio Tinto (ASX:RIO) share price having such a great day?

Rio Tinto shares have risen today. What’s happening?

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The Rio Tinto Limited (ASX: RIO) share price has gone up 2% today. It has outperformed the S&P/ASX 200 Index (ASX: XJO) which has gone down by 0.1%.

You’d have to ask the buyers and sellers today exactly why they were willing to transact 2% higher than yesterday, but there have been a couple of different things that have happened this week.

Is the iron ore price affecting the Rio Tinto share price?

The profits and investor sentiment about resource businesses can change as the price of the underlying resource changes as well.

Rio Tinto is one of the biggest iron ore miners in the world. The price change of iron can seriously alter its profit outlook – it costs virtually the same for Rio Tinto to dig up a tonne of iron, whether the commodity is priced at US$100 per tonne or US$150 per tonne.

In the FY21 third quarter alone, Rio Tinto produced 83.3mt of iron ore (which was down 4% year on year, though up 10% the second quarter of FY21).

Overnight, according to CommSec, the iron ore price increased by 0.2% to US$100.10 as it makes a slow-but-steady recovery from the lowest price a few weeks ago.

The more that the iron ore price recovers, the more Rio Tinto’s profit potential increases in the short-term.

However, the Rio Tinto share price is still almost 25% lower than it was six months ago.

Vale reduces iron production forecast

One of the other huge iron ore miners in the world is Vale from Brazil.

Vale is a major competitor to Rio Tinto and the other ASX iron ore miners like BHP Group Ltd (ASX: BHP).

As reported yesterday by my Motley Fool colleague Brendon Lau, Vale has downgraded how much iron ore it is expecting to produce this year, with a reduction from the previous range of 315mt to 335mt to the lower range of 315mt to 320mt.

But the 2022 production guidance was also reduced to a range of between 320mt to 335mt.

Vale said that it wanted to protect its margins over volume, so it is holding back shipments of lower-quality ore.

Is the Rio Tinto share price an opportunity?

Opinions are mixed on the business. At one end is a broker like UBS which currently rates the ASX miner as a sell with a price target of just $79 because of the poor outlook for iron ore.

However, analysts at Credit Suisse rate the business as a buy with a price target of $106 with China potentially causing a recovery in 2022.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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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