The Rio Tinto Limited (ASX: RIO) share price dropped by 5% on Friday as the iron ore price continued its dramatic fall.
What’s going on with the Rio Tinto share price?
It’s unavoidable for the major iron ore miners of Rio Tinto, BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG) to escape share price declines as the iron price sinks like a stone.
You may remember that in May 2021 the iron ore price was above US$230 per tonne. That’s history. Iron ore is now at around US$107 per tonne. That means it has halved in just a few months.
There have been several factors for that iron decline. There’s rising supply, particularly coming from Brazil as it recovers from COVID-19. Chinese demand has been slowing for Australia’s key export. China has been telling its steel producers to slow down, seemingly for environmental reasons.
But there is probably another reason why the market is sending the Rio Tino share price and iron ore down: submarines.
Nuclear submarines
As I wrote about yesterday, Australia is going to get nuclear-powered submarines in a partnership with the US and the UK. The new partnership is called Aukus. However, these are not nuclear armed submarines.
The BBC reported that China has called this arrangement “extremely irresponsible” and “narrow-minded”. The BBC also reported:
“Chinese foreign ministry spokesman Zhao Lijian said the alliance risked “severely damaging regional peace… and intensifying the arms race”.
He criticised what he called “the obsolete Cold War… mentality” and warned the three countries were “hurting their own interests”.
Chinese state media carried similar editorials denouncing the pact, and one in the Global Times newspaper said Australia had now “turned itself into an adversary of China”.
What does this mean for the Rio Tinto share price?
The market seems to think that this is bad news for the mining giant. The Rio Tinto share price has fallen 26.5% since 4 August 2021.
Not only was China reducing demand for iron ore before, but this submarine deal could lead to a drastic reply. Or it may not. We’ll have to see over the next few days and weeks.
An even better price may present itself in the shorter-term, so I’d be happy to wait.
