What are brokers saying about the Rio Tinto (ASX:RIO) 2022 production update?

Here’s what analysts had to say in response to Rio’s update yesterday.

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Shares in resources giant Rio Tinto Limited (ASX: RIO) winched higher today and finished less than 1% in the green at $109.91.

The Rio Tinto share price has reclaimed territory after bottoming in November and is now trading back above monthly highs.

Now, following the release of the mining juggernaut’s Q4 production update yesterday, investors are evaluating their next moves, alongside the analyst teams at several leading brokers.

Here’s what they had to say in response to Rio’s update yesterday.

Quick recap of Rio’s Q4 trading update

For the 3 months ended 31 December, Rio recognised a 5% decline in its Pilbara iron ore shipments to 84.1 million tonnes (Mt).

Mined copper came in at 132 thousand tonnes (kt) for the quarter, flat year on year, whereas full-year copper mined came in 7% lower year on year at 494kt. Aluminium volume also contracted 7% last quarter to 757kt, resulting in a 1% decrease to 3,151kt.

Much of the headwinds experienced by Rio during the period stemmed from COVID-19 lockdowns compounded by softening commodity markets that were each weaker on the year.

For 2022, Rio is forecasting iron ore shipments of 320Mt–335Mt and mined copper production of 500kt–575kt.

What are brokers saying about Rio Tinto?

The team at RBC Capital Markets reckons that Rio’s production report will ultimately result in a small downgrade in the consensus view of its 2021 earnings.

However, whilst the broker takes this posture, it also believes there will be a limited impact on 2022 forecasts. Even still, RBC acknowledges that capacity issues in iron ore markets are likely to inflect on the Rio share price this year.

“With wider strategic questions and unresolved situations in Mongolia, Serbia and Guinea” the broker says, “we continue to prefer other exposures, like Glencore and Anglo American globally and BHP in Australia”.

RBC Capital Markets has Rio Tinto as a ‘sector perform’ and values the company at $110 per share.

Meanwhile, analyst Myles Allsop from investment bank UBS notes that Rio Tinto still struggles operationally, noting its meandering operations and ongoing challenges to mine-capacity in a note to clients.

Allsop notes that Rio’s 2022 production guidance was also disappointing, with the broker expecting more out of Rio for the coming production year.

It rates Rio as a sell and values the company at $80, factoring in a considerable amount of downside potential from the current share price.

Long-term Rio bull Citi notes that production results were mixed, with a stronger than anticipated result for titanium dioxide and worse than expected outcome in its copper division.

On the other hand, with respect to production guidance, Citi notes that “iron ore [was] marginally lower than we anticipated” and is aligned with the view of UBS.

Finally, analyst Mark Crouch at brokerage eToro claims that there is heightened demand for precious metals right now, supporting a buoyant commodities sector.

Crouch says that he expects a “significant spike in demand once China, one of the world’s largest consumers of precious meals, ditches its zero-Covid policy and returns to full growth potential”.

The analyst reckons that Rio’s production guidance issues aren’t that surprising considering the current shortage of available workers, and government enforced lockdowns in key mining areas.

Morgan Stanley, Goldman Sachs, Credit Suisse and Macquarie rate Rio Tinto as a buy right now, whereas JP Morgan and Jefferies have it as a hold.

The Rio Tinto share price has climbed 10% already this year to date having rallied 4% in the previous 5 days of trading.

The author has no positions 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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