JPMorgan cuts mining forecasts on further demand weakness in Q2
JPMorgan Cazenove has reduced target prices across the UK mining sector after lowering its commodity forecasts, predicting further demand weakness in the second quarter.
Anglo American
2,430.00p
17:15 04/10/24
Antofagasta
1,973.00p
17:15 04/10/24
BHP Group Limited NPV (DI)
2,304.00p
17:00 04/10/24
FTSE 100
8,280.63
16:49 04/10/24
FTSE 350
4,570.17
17:14 04/10/24
FTSE All-Share
4,527.24
16:54 04/10/24
Glencore
433.10p
17:00 04/10/24
Mining
11,521.23
17:14 04/10/24
Rio Tinto
5,298.00p
17:15 04/10/24
The demand for base metals in China was weaker than predicted in January and the robust pick-up post Chinese New Year that many had hoped for failed to materialise, JPMorgan said.
Weak conditions are forecast to spread into the second quarter before a short-lived bounce in the third quarter. This will be due to a six-month lag from Chinese monetary stimulus.
"Global demand for industrial metals in Q1’15 undershot our expectations, particularly in China and well-flagged mine supply disruptions are not expected to be severe enough for bullish price formation in 2015," JPMorgan said.
The broker has lowered its 2015/2016 forecasts for copper prices by 3%/6%, aluminium by 5%/9%, zinc by 4%/6% and nickel by 14%/15%.
The result is a reduction in earnings estimates for a number of blue-chip mining companies, including Rio Tinto, BHP Billiton, Glencore Antofagasta and Anglo American.
After revisions, JPMorgan predicts that only Rio and Glencore among the diversified miners will be able to cover dividends from free cash flow in 2015 and 2016.
Rio Tinto remains the broker's top pick with an "inexpensive" price-to-earnings valuation multiple of 15, though the business is vulnerable to ongoing weakness in China' steel sector, it said. The stock is rated 'overweight' but its target price has been cut from 3,550p to 3,500p.
Glencore and Anglo American, both rated 'underweight', are the least preferred. Their target prices have been reduced from 260p and 1,170p to 250p and 1,080p respectively.
The FTSE 350 mining sector was trading broadly flat on Wednesday morning, compared with a 1% gain for the wider market.