JP Morgan lifts targets for iron ore miners, upgrades Rio Tinto

JP Morgan has upgraded its rating for Rio Tinto and raised target prices across the iron ore sector after turning more positive on the outlook for iron ore prices.

At the start of the year, JP Morgan had taken a cautious view to miners with iron ore exposure, on the back of waning steel demand in China and improvements in supply.

But things have now changed: "Brazil and Australian exports have indeed improved (+5% and +2% year-to-date, respectively). However, China steel demand has proven more resilient as infrastructure demand offsets poor property sector demand (both ~30% of China steel demand) and excess output is finding its way to the export market," the bank said in a research note on Thursday.

"With the iron ore market relatively more balanced medium term, we raise our 2023-25 iron ore price forecasts +6%/+13%/17%."

JP Morgan said that Rio Tinto now offers a more attractive valuation, trading at a free cash flow yield of 9% and 10% on 2024 and 2025 estimates. The target price has been raised from 5,440p to 6,000p, and the rating has been moved from 'underweight' to 'neutral'.

BHP's target price has also been hiked from 2,320p to 2,550p, but a 'neutral' stance was maintained.

However, JP Morgan reiterated its 'overweight' recommendation for shares of Anglo American, as it raised its target price for the tock from 2,650p to 2,900p. The bank said Anglo "remains our top pick with stronger value unlock potential".

Rio was trading 2.7% higher on Thursday morning, while BHP gained 2.1% and Anglo rose 2.7%.