Citi cuts forecasts for aluminium and copper, but positive on miners

The longer-term outlook for miners continues to be highly uncertain but simply attaining “macro stability” should see the sector re-rate upwards, analysts from one of the world´s largest brokers said.

Indeed, on Wednesday analysts at Citi cut their price forecasts for most base and industrial metals. However, at present miners´ share prices are discounting more than just macroeconomic growth concerns, they believe. Large miners, in particular, are trading on approximately a 60% yield premium to the wider UK market in comparison to a historical peak of about 25%.

Furthermore, the latest earnings season for companies from the commodity space has been “mildly positive” on cost reductions, better working capital, downward revisions on capital expenditure and lower net debt levels.

Nevertheless, “the improved cash-flow potential has not translated into higher equity valuations, Citi´s EMEA Metals&Mining team said in a research report e-mailed to clients.”

In the longer-term the outlook for miners will hinge on positive US$ global growth and/or synchronised global growth. When the report was issued Citi economists were anticipating rates of economic growth worldwide in the low single-digit range despite a soft-landing for China being their base case.

Citi lowered its target prices for shares of Anglo American to 700p from 900p and on Glencore to 210p from 280p.

In parallel, the broker slashed its forecasts for the price of copper in 2015 and 2016 by 7.6% and 10.6% to $5,740 and $6,350 per metric tonne, respectively.

The price of aluminium was now also seen lower this year and next, by 4% and 9.2% versus the bank´s previous estimates at $1,700 and $1,638 per metric tonne.

Iron ore on the other hand was now seen at $51 metric tonne in 2015, up from the $50 previously anticipated.