Analysts at Credit Suisse have revised up their global steel forecasts by 7% next year. So they are also more bullish on a key ingredient for steel — iron ore.
Credit Suisse lifted its iron ore prices between 17% and 30% over the next three years, and also its hard coking coal forecast by 6%. That translates into a big bump in operating profit forecasts for BHP Group and Rio Tinto. Credit Suisse lifted its rating on BHP to outperform from neutral, along with its target price to £18 ($46.50 per U.S.-listed share of the U.K.-domiciled company) from £14.50. On Rio Tinto, it lifted its rating to neutral from underperform, and its target to £50 ($65) from £41.
The analysts say BHP is its preferred pick, since it not only provides upside to iron ore but also has a more diversified portfolio, which could benefit from a pickup in copper prices as well as strengthening metallurgical coal demand.
On Rio Tinto, they said “ESG [environmental, social and corporate governance] concerns are, to an extend, behind the company with the management reshuffle,” referring to the planned ouster of Chief Executive Jean-Sébastien Jacques after the company blew up two ancient caves at Juukan Gorge, Western Australia.
“We remain neutral as the valuation gap between RIO and BHP that opened post-Juukan is likely to remain given uncertainty over RIO’s new leadership team, and given subsiding momentum for iron ore,” they said.
In Wednesday afternoon trade in London, Rio Tinto shares fell to £46.89, and BHP’s slipped to £16.68.
barrons.com