Rio Tinto Ltd (ASX: RIO) shares have dropped quite sharply in 2024 to date, falling by around 6% and reversing some of the gains the ASX mining share has experienced over the last few months, as we can see on the chart below.
What's going on?
The culprit of Rio Tinto's slip appears to be a fall in the iron ore price. Rapid changes in the iron ore price can quickly send the Rio Tinto share price higher or lower, depending on which direction the commodity value is headed.
According to Trading Economics, the iron ore price fell back below US$130 per tonne after recently being above US$140 per tonne. But, we should keep in mind that in August the iron ore price was below US$110 per tonne, so it is still up substantially in the last few months.
Trading Economics analysis suggested the decline of the iron ore price was due to "signs of low demand". The Chinese economy grew by 5.2% in 2023, which was less than the market expectations of 5.3%.
As explained on the website:
New home prices sank at the sharpest pace since 2015, stretching the declining momentum to the sixth month and underscoring the slump in property demand in the country.
Persistent macroeconomic headwinds for China and uncertainty over demand for construction materials in the year ahead tempered iron ore demand from steel mills and countered added buying activity in their usual restocking season.
Market players noted that robust portside iron ore inventories limited new purchasing demand from steel mills as the sector struggles with decreasing margins, contributing to the downturn.
Is this a good time to invest in Rio Tinto shares?
I think it's always better to invest in a cyclical business like an ASX mining share after a decline rather than when the iron ore price and Rio Tinto share price are running hot.
No one can predict with certainty when the iron ore price will move substantially up or down or by how much. But, it does keep going through positive and negative periods as supply and demand conditions change.
Now is certainly a better time to invest in Rio Tinto shares than compared to the start of 2024. However, it's still up by more than 10% over the last three months.
I think it's a much better idea to buy ASX iron ore shares when the iron ore share is below US$110 per tonne and preferably below US$100 per tonne.
But, I like the moves the company is making to diversify and grow its operations.
It has made major plans to grow its exposure to copper, with the ASX mining share increasing its stake in the giant copper mine Oyu Tolgai in Mongolia.
According to Rio Tinto, global demand for copper is set to grow by between 1.5% to 2.5% per year. Decarbonisation is a strong tailwind for this resource.
Using the forecasts on Commsec, it's valued at 10x FY24's estimated earnings with a possible grossed-up dividend yield of 8.6%.
