Liberum cuts iron ore forecasts, downgrades host of miners

Liberum downgraded its ratings on a host of mining stocks on Thursday as it refreshed its bear case on iron ore, noting that credit growth is not fuelling Chinese property sales as in previous cycles.

The broker said the Chinese data dump in July confirmed that the out-of-cycle rally in Chinese property construction has likely peaked and along with it, iron ore demand.

"Iron ore is the only one of the four major commodities to still be trading well above its cost structure and we see limited price elastic supply above $50/t," it said.

Liberum downgraded its second-half forecast from $90 a tonne to $75/t and said it expect prices to average $50/t next year as Chinese steel consumption turns negative.

It downgraded BHP, Rio Tinto and Anglo American to 'sell' from 'hold', cutting the price targets to 1,400p from 1,800p, 3,300p from 4,500p and 1,500p from 2,200, respectively. It also downgraded Ferrexpo to 'sell' from 'buy' and reduced the price target to 165p from 300p.

Liberum said there were still "significant" downgrades to wash through.

"Moving EBITDA from spot ($88/t) to our 2020 forecast ($50/t) sees declines of 37%for BHP, 51% for Anglo, 59% for Rio and 29% for Ferrexpo. The stocks will re-rate into the declines, but we still see downside of 15-25%."

At 1230 BST, BHP shares were down 0.7% at 1,702.20p, Rio shares were down 0.3% at 3,979p and Anglo shares were 1.7% lower at 1,694.60p. Ferrexpo shares were 5.3% lower at 204.45p.