Here’s why the mining giant’s stock soared this week

Shares in a mining company Rio Tinto (RIO 0.73%) rose 11.3% in the week to Friday morning. The move comes as China’s central bank injected liquidity into the banking system to stabilize the housing market and help China meet its growth target of about 5 percent in 2024.

Rio Tinto and China

The miner operates from four product groups: iron ore, aluminum, copper and minerals. Iron ore is by far Rio Tinto’s most important product, and its use in iron and steel production means Rio Tinto’s outlook will always be driven by steel demand. That usually means demand from China. The country is the world’s manufacturing superpower, responsible for about half of the world’s steel production and use. As such, it is the factor of variation that determines the demand for iron ore.

About 24% of China’s steel demand comes from construction, 17% from infrastructure and 30% from machinery. As such, when there are concerns about the real estate sector and the industrial economy, the iron ore and Rio Tinto markets will experience negative sentiment.

The weakness of its housing market is more of a country-specific problem. However, the slowdown in its industrial sector in 2024 is also down to falling export demand due to slowing global growth. But recent news from China’s central bank sent iron ore prices higher this week. In addition, copper prices have risen sharply, thus benefiting copper miners Freeport McMoRan.

Image source: Getty Images.

Will it last?

China’s stimulus comes at the right time and signals the government’s and central bank’s intent to meet its growth targets. With interest rates falling in the US and elsewhere in the world, global growth may improve, leading to more demand for steel and ultimately Rio Tinto’s iron ore.