RBC Capital Markets has shifted its view on Rio Tinto, lowering the recommendation to "Underperform" from "Sector Perform" while marginally increasing the target price to 6,400 pence from 6,300 pence. The brokerage cites a revised outlook for iron ore prices as the central driver of the change.
In a sector update, RBC explicitly said it expects iron ore to continue trending down to $85 per tonne by the end of 2027. That forecast frames the brokerage's assessment of the company s earnings and cash-generation prospects and underpins the downgrade.
RBC also warned that an extended conflict scenario could lift freight rates, with the potential to reduce realised pricing and to impair Rio Tinto s cash generation. The brokerage flagged higher freight as a specific channel through which weaker commodity conditions could translate into poorer company-level outcomes.
Despite the downgrade, RBC increased its underlying earnings and cash-flow forecasts for Rio Tinto. The broker raised adjusted earnings per share for 2026 to $8.22 from $7.80 and lifted EBITDA for that year to $30.19 billion from $29.25 billion. For 2027, adjusted EPS was increased to $8.33 from $8.11 and EBITDA to $30.77 billion from $30.48 billion. The 2028 adjusted EPS estimate was raised to $7.98 from $7.50 and EBITDA to $31.25 billion from $29.94 billion.
Free cash flow projections were revised higher as well, with RBC forecasting $6.44 billion in 2026, $9.39 billion in 2027 and $11.58 billion in 2028. Those upward revisions to earnings and cash flow stem from RBC s updated modelling but did not translate into a higher valuation multiple.
The broker retained the valuation multiples it applies in its base-case target, maintaining a 1x net present value multiple and a 5.80x EV/EBITDA multiple. Using those parameters, RBC lifted its target price by 2% to 6,400 pence per share.
Even with the revised forecasts, the brokerage s base-case valuation sits below the market. RBC s base-case net asset value is 5,255 pence per share, compared with a market price of 8,308 pence at the time of the report. Under the broker s base-case assumptions, Rio Tinto was trading at approximately 1.50x price-to-net-asset value and around 6.6x 2026 EV/EBITDA.
RBC also published a revised long-term commodity price path. In that profile, iron ore is forecast at $105 per tonne in 2026, $103 per tonne in 2027 and $89 per tonne in 2028, before moving toward a long-term assumption of $85 per tonne. The brokerage reiterated its expectation that iron ore prices will weaken from current levels over time.
Context and implications
The combination of a lower rating and only a modest increase in the target price reflects RBC s view that weaker iron ore pricing will be the primary constraint on Rio Tinto s valuation going forward. While the firm s underlying earnings and free cash flow forecasts have been nudged up in the near term, unchanged valuation multiples and a softer commodity outlook mean the broker s base-case estimate remains below prevailing market pricing.
Investors tracking materials, mining equities and trade-exposed industrials will likely treat the downgrade as a signal that commodity risk and freight-cost volatility could weigh on sector cash generation and valuation metrics.