JPMorgan upgrades Rio Tinto to ‘overweight’

The bank is ‘neutral’ on EMEA metals and mining into next year but said it believes a mixed macro outlook presents an opportunity for investors to re-examine long-term structural themes in the sector, which can drive relative outperformance for select companies.

"Notably, we believe emerging costs of carbon (both explicit & implicit) could drive structural shifts in certain subsectors (aluminium, iron & steel, coking coal) & offer significant opportunities for those miners positioned as: 1) low CO2 producers in high CO2 intensive sectors & 2) incumbents where restrictions could drive supply/demand tightening.

"Thus, with near-term aluminium cost support & long-term CO2 costs potentially steepening the cost curve, we double upgrade Norsk Hydro to ‘overweight’ and upgrade Ma’aden to ‘neutral’."

Among the iron ore-dominated diversifieds, the bank upgraded Rio to ‘overweight’ from ‘neutral’, citing iron ore and free cash flow yield resilience. It maintained its ‘overweight’ stance on Anglo American, given its valuation discount and turnaround potential over 2024/25.

"We believe the European steel demand recovery remains fragile into 2024, however, we upgrade ArcelorMittal to ‘overweight’, with its year-to-date de-rating offering a valuation buffer, although we remain on the sidelines for vulnerable peers."

JPM said that while it’s ‘neutral’ on platinum group metals, it is also long-term bullish on gold exposure, highlighting ‘overweight’ rated AngloGold and Hochschild as its top picks.

"While we see copper moving to deficit given recent supply cuts, EMEA copper miners screen relatively more expensive with greater idiosyncratic risks; thus, we remain ‘underweight’ on Antofagasta, Boliden, & KGHM."