Shares in FTSE 100 mining giant Rio Tinto (RIO) gained 0.7% to £60.14 as it revealed higher production of one of the hottest commodities right now – iron ore.

Rio Tinto said its fourth-quarter iron ore production rose 3% year-on-year, helping it to boost annual production by 2%. Output of the key steelmaking ingredient in the three months to 31 December increased to 86 million tonnes, though output was flat compared to the third quarter.

It comes as iron ore prices have continued to surge in recent months and this week closed in on a decade high having topped $174 per tonne, well above the $100 a tonne the metal was trading at this time a year ago.

With Rio making roughly three-quarters of its earnings from iron ore, the miner’s shares have soared on the back of surging prices, rising almost 30% since the start of November.

CAN IRON ORE KEEP RISING?

How long iron ore’s stellar run can continue is a matter of debate among analysts in the commodity world, though it’s largely expected the metal will lose steam at some point this year as supply recovers from top exporting countries like Australia, Brazil and South Africa, and Chinese steel demand normalizes.

Liberum analyst Ben Davis sees the commodity’s strong run fading this year, with steel consumption in China – the world’s biggest consumer of iron ore – set to reduce in 2021, and said that assuming apparent steel consumption is down -1% in 2021, this would need 20mt less in iron ore units.

Talking about the seaborne iron ore market Davis said, ‘A 20mt fall in iron ore import demand is not large in itself, but given that the we have the additional seaborne supply growth of c.50mt (c.30mt of it from Vale), this would require the other seaborne importers to absorb an additional 70mt of inventory in a c.300mt market.’

‘WORKING TO RESTORE TRUST AND REBUILD REPUTATION’

Meanwhile in its production report Rio Tinto also addressed the steps it is taking to rebuild its reputation after it accidentally blew up two scared, historical Aboriginal sites in the Pilbara region of Western Australia when digging for iron ore.

The incident had a damaging impact on Rio’s share price before the surge in iron ore prices, and also cost former chief executive Jean-Sebastien Jacques his job.

New chief executive Jakob Stausholm said the miner is ‘working to restore trust’ with the Puutu Kunti Kurrama and Pinikura (PKKP) people of the region.

Stausholm said, ‘Some important progress has been made as set out in the joint statement issued in December following a meeting between the PKKP and Rio Tinto boards.

‘We are also developing additional measures to strengthen our partnerships with Traditional Owners, including a commitment to modernise and improve agreements, particularly in the Pilbara.

‘More broadly, we are determined to improve Rio Tinto’s approach to stakeholder engagement globally by embedding a more inclusive approach that strengthens our overall thinking, decision-making and performance.

‘However, I do not underestimate the time and effort it will take, genuinely working together with our partners, in order for Rio Tinto to drive the changes necessary to help restore trust and rebuild our reputation.’

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Issue Date: 19 Jan 2021