Positive near-term catalysts for Rio Tinto limited, says BoA Merrill Lynch

Bank of America Merrill Lynch cut its stance on miner Rio Tinto to 'underperform' from 'neutral' on Thursday, slashing the price target to 4,150p from 4,770p as it noted limited positive catalysts in the near term.

Merrill said Rio's results earlier in the week were solid. Among the company’s catalysts and delivery in the last 12-18 months, it highlighted the capital return of $13.5 declared in respect of 2018, the exit of the "somewhat controversial" Grasberg copper asset in Indonesia and the exit of coking coal assets and the Dunkerque smelter in France. It also pointed to the group's total disposals of $12bn since 2015.

From here, however, the bank said it sees "relative less potential" for catalysts and that as a result, investors could be ready to "book" the solid performance of the shares.

"Rio’s management has indicated that the asset disposal process is largely finished and, for choice, we are starting to see a switch towards organic growth. In our view, this is necessary but it is inherently riskier than Rio's ’shrink to grow' approach to value realisation."

Merrill said iron ore is "key" and that it sees Chinese steel production in 2019 as flat or slightly lower versus last year.

"Seasonally, we are entering a quiet period between Chinese New Year (Feb 6th) and the end of China’s National People's Congress (mid-late March)," it said.

At 1510 GMT, the shares were down 2.4% to 4,320p.