Credit Suisse downgrades Anglo American, sees cut to divi

Until final demand from China and emerging market currencies find a bottom it will continue to be hard to set a floor for commodity prices, one of the world’s largest brokers believed.

Iron ore was set to do worst from current levels while copper prices were seen “hovering” around the top-end of the cost curve (220 US cents) until a deficit reappeared in the market, towards 2018, Credit Suisse said.

Other base metals would not fare much better, with the Swiss broker only anticipating a shallow recovery.

As regards the main stocks in the sector, Glencore shares offered the potential for a 25% re-rating given the large valuation that has opened up following recent sharp falls in the stock price, the team of analysts led by Liam Fitzpatrick said in a research note e-mailed to clients.

Nonetheless, Glencore had “suffered a complete loss of confidence from investors following the recent dividend cut and equity placing,” the analysts added. The broker kept its recommendation on the commodities traders unchanged at outperform with a target price of 175p.

Rio Tinto was the broker’s preferred play but the poor outlook on iron ore meant Credit Suisse decided to keep at neutral. Indeed, it cut its target on the stock to 2,500p from 2,800p.

Management at Anglo American had been delivering and there was ‘value’ to be found in the shares on a one to two year view. However, "earnings momentum in diamonds and platinum has surprised us to the downside and by virtue of GLEN's weak performance Anglo is no longer the obvious value or recovery play".

Credit Suisse expected Anglo American to cut its dividend pay-out by 45% at year-end.

It lowered the shares to neutral with a 900p target price.

Lastly, Fitzpatrick and his team kept a 'neutral' recommendation on BHP, arguing that "BHP would reduce the dividend or even consider this for a number of years (the balance sheet remains relatively strong), we see it as somewhat restrictive to the broader business".

Iron ore forecast raised, outlook for copper lowered

In a separate report published on 21 September, the Credit Suisse Mining and Metals team upped its forecast for the average price of iron ore in 2015 to $58 per tonne, from $56 previously.

The price of copper on the other hand was now seen averaging $5,673 per tonne in 2015, versus a previous estimate for $6,126 per tonne.

In 2016, copper was seen at $4,775 per tonne instead of $5,850.

Forecasts for 2017 and 2018 were also lowered, to $4,750 (from $5,700) and $5,900 (from $6,200), respectively.

“There is little to like about most commodities over the medium-term, just relative degrees of unloveliness.”