Why did the Rio Tinto share price hit the brakes in FY22?

Rio Tinto shares recorded one of its most volatile years on record.

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Key points

  • Rio Tinto shares tumbled 19% in FY22 following a decline in iron ore prices 
  • The macro environment also played a significant hand dragging down the miner's share price 
  • Fellow peers, BHP and Fortescue also were dragged lower in FY22 by 15% and 25%, respectively 

The Rio Tinto Limited (ASX: RIO) share price had a volatile ride during the 2022 financial year.

The miner’s shares finished at $126.64 on 30 June 2021 and recently closed at $102.70 at the same time this year.

This represents a fall of around 19% for shareholders who kept holding on.

In contrast, shares in BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) backtracked 15% and 25%, respectively.

At the time of writing, Rio Tinto shares are trading at $100.89, up 0.15% for the day.

What’s impacted Rio Tinto shares during FY22?

There are a few factors as to why the Rio Tinto share price fell into a funk in FY22.

First and foremost, the wild swings in iron ore prices heavily weighed on the company’s margins. The price of the steel making ingredient rose to near record highs in July 2021. Supply for iron ore was restricted due to the Chinese COVID-19 outbreak.

However, a slowdown in Chinese demand amid political pressure led iron ore prices to tumble to a 52-week low in November.

Regarded as a key commodity in Rio Tinto’s portfolio, this is particularly important given a majority of its revenues come from the steel making ingredient.

In the financial year ending 31 December 2021, iron ore accounted for 62% of the total group sales revenue.

More recently, Rio Tinto shares dropped off again in early March this year following the Russian war in Ukraine.

The miner stated that it was cutting all ties with the former Soviet Republic.

Consequently, the mining outfit’s share sank to just above the $100 mark.

In addition, the S&P/ASX 200 Resources (ASX: XJR) index has also headed south, posting a loss of around 5% in FY22.

The sector represents 48 of the largest companies in the ASX 200 that are members in the energy, metals and mining industry.

This came off the back of a gloomy economic outlook due to soaring inflation levels and interest rate hikes.

The extreme market volatility led to a negative shift in investment sentiment across the index.

Rio Tinto share price summary

A challenging year has brought upon many surprises for the Rio Tinto share price.

While down 20% since this time last year, and flat in 2022, its shares have produced strong returns over the long term.

For context, Rio Tinto shares are up 150% since the start of 2016.

The company has a price-to-earnings (P/E) ratio of 5.33 and commands a market capitalisation of roughly $37.40 billion.

Motley Fool contributor Aaron Teboneras 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 Scott Phillips.

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