OnSep 15, 2015, we issued an updated research report on premium industrial metals & minerals company Rio Tinto plc RIO. Since its inception in 1873, the company has significantly expanded the scale of its business through improved operational efficiency and internationalization strategies. However, industry-specific rivalry and other headwind-related issues continue to threaten the company’s performance in the global forum.
Prospective Aspects
Higher rate of industrialization in the world has enhanced demand for the industrial raw materials. High economic growth in some developed countries such as the U.S. and certain emerging economies like China is driving the demand for iron, copper and aluminum in the market. Given such booming demand and increasing yield, Rio Tinto remains confident about revenue growth, going ahead.
Also, leveraging innovative solutions provided by big data analytics, Rio Tinto attempts to augment its productivity. The company aims to reduce the risk of production failures arising from near-term headwinds with strategic approaches. Moreover, backed by an economical business management system and highly productive asset base, the company is well placed to improve its margins and increase shareholders' value in the near term.
Persistent Issues
Excess supply over demand, economic downturn in China and severe rivalry among mining giants led to a fall in iron ore prices in recent times. Weakening market prices of iron ore have been affecting Rio Tinto's aggregate revenues and margins adversely.
On the other hand, since the company aims to augment the productivity of iron ore, subsequent news of higher output has triggered negative sentiments in the iron ore commodity market. This is because rising output will only add to the global supply of the material, thus weighing on its equilibrium prices. This would ultimately drag the price of iron ore further downward, hurting the company's top- and bottom-line results in the upcoming quarters.
Apart from iron ore, market prices of other products offered by the company such as copper and nickel are also declining over time. Further, natural disasters like tropical cyclones, severe monsoon and constant flooding often generate problems for the company.
Stocks to Consider
Rio Tinto currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Denison Mines Corp. DNN, OCI Resources LP OCIR and UR-Energy Inc. URG. All three stocks hold a Zacks Rank #2 (Buy).
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Click to get this free report RIO TINTO-ADR (RIO): Free Stock Analysis Report UR-ENERGY INC (URG): Free Stock Analysis Report DENISON MINES (DNN): Free Stock Analysis Report OCI RESOURCES (OCIR): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research