BofA upgrades Rio Tinto and BHP to 'buy' on iron ore outlook

Global stimulus and the resumption of industrial activity are an "inflexion point" for metal demand that will benefit miners, BofA said. China is loosening financial conditions and stimulating economy and the price of iron ore is likely to rise 15% in 2020, the bank added.

BofA set a price target of £57 for Rio Tinto shares and £20.50 for BPH and added BHP to its Europe 1 list of top investment ideas. It said the "big change" was the more positive outlook for iron ore, which had gone against analysts' expectations. Brazilian output has been disappointing and Chinese steel production has been surprisingly strong, BofA said.

"With stimulus flowing through from China’s recent NPC [national people's congress] and potential fiscal stimulus in [the rest of the world], it is now hard to see iron ore supply demand fundamentals weakening in near term," BofA analyst Jason Fairclough wrote in a note to clients. "We think it is reasonable to consider 'higher for longer' iron ore prices."

Rio Tinto and BHP are both high quality companies with strong balance sheets and solid assets, Fairclough said. They have predictable dividend policies with dividends backed by strong cash flows and are attractive relative to "cutters" such as banks and oil companies, he added.