Rio warned that steel production in China has reached its saturation point.
👉 Background: Rio Tinto is one of the world's biggest mining companies - they mine iron ore copper and diamonds. Interestingly, Rio Tinto is a dual-listed company — they're publicly listed in the ASX and the London Stock Exchange.
👉 What happened: Rio warned that steel production in China has reached its saturation point. That's a major red flag for Rio Tinto because steel production requires iron ore. And iron ore is Rio Tinto's cash cow.
👉 What else: With lower demand from its main squeeze, Rio Tinto is now playing the field and looking to sell to companies in other countries in Asia.
💡Relying too heavily on one market, or customer, can be a risky business.
💡About 54% of Rio Tinto's revenue comes from China, so any major shock to China's economy is going to shock Rio Tinto too. That's why they're looking to diversify their customer base before this softer demand becomes a problem for them.
💡And Rio Tinto isn't the only company putting many of their eggs in one basket. In 2020, China imposed some major tariffs on Aussie wine. Because of that, Penfolds' annual profits dropped by more than 30 per cent.
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