What's going on?

2016 has seen commodity prices, like iron ore, rebound from the lows that were hit late last year, but market conditions remain very challenging for mining companies: on Wednesday, one of the world�s biggest miners, Rio Tinto, said it made only half as much profit in the first half of 2016 as it did one year ago.

What does this mean?

Rio Tinto relies on selling commodities like iron ore and copper to China for almost half of its revenue. Chinese demand for commodities has picked up this year due to actions from the Chinese government aimed at boosting its economy – and that has pushed up commodity prices. But Rio Tinto�s new CEO is acutely aware that it�s a precarious rebound and that �the fact of the matter is that China is slowing down.� In response, Rio Tinto has been cutting its costs and decreasing its debt so that it is better able to withstand another downturn in commodity prices (should that occur).

Why should I care?

For stocks: Investors are watching for signs of more Chinese stimulus.

Economic data out earlier this week suggested that China�s manufacturing industry (e.g. the factories that buy iron ore) is doing worse than it was earlier this year. It�s quite possible that the effect of the government-led stimulus that took place is starting to wear off. One big question is if and when China�s government takes new steps to boost its manufacturing sector – if it does, it would be positive for commodity prices and miners like Rio Tinto.

The bigger picture: Mining is extremely cyclical � kind of like some investors!

When commodity prices are high, companies like Rio Tinto typically spend a fortune increasing their production. That leads to over-supply that, especially when coupled with declining demand, causes prices to crash. The low prices lead miners to cut costs – and cut production – which can leave them without enough supply to sell in the future. It�s kind of like when investors buy high and sell low� and it�s typically not a winning strategy!