SocGen sees more excess capacity in iron-ore, miners down

Societe Generale lowered its iron ore price estimate for the period between 2015 and 2018 “conservatively” to $55 per metric tonne and to $70 per metric tonne thereafter.

That was roughly $20 per metric tonne below its previous estimates.

On the back of the reduction, which is motivated by cost reductions at the major producers and a projection for flat growth in Chinese steel demand, the analysts downgraded their recommendation on shares of Rio Tinto and Anglo American.

In the case of the former, the French broker said efficiency gains were now fully priced in. Together with the fact that iron ore prices were now seen “lower for longer”, analysts Christian Georges and Alain William decided to lower their recommendation on the stock to ‘hold’ from ‘buy’.

The price target was revised down to 3,100p from 4,000p previously.

Furthermore, under their base-case scenario another 80mt of excess capacity were seen arising, which would need to be offset. Nonetheless, steady government stimulus programmes out of China should assist underlying demand. For that reason, "the iron ore price is unlikely to fall markedly below our $55/ton average [forecast]".

Anglo American also fell afoul of SocGen’s weaker outlook for iron ore prices. The recommendation on its stock was lowered to a ‘hold’ with a new price target of 1,090p, down from 1,540p.

Shares in BHP Billiton, meanwhile, were upgraded to a ‘buy’, versus a previous recommendation to ‘hold’. The target was nudged lower to 1,600p from 1,700p.