A SLOWING Chinese economy has led Credit Suisse to slash iron ore price forecasts for next year by 20 per cent.
This also prompted it to also cut the rating on BHP Billiton to neutral and slash the big miner''s profit forecast by $US4 billion ($4.6bn).
In its most recent quarterly commodities review, Credit Suisse chopped its 2010 iron ore price forecast by $US23 a tonne to $US106 and for 2011 from $US132 to $US104.
Analysts at the bank said Chinese government cooling measures had cut steel production dependent on iron ore imports by about 4 million tonnes a month. Concerns about Europe have led to steel demand being reduced there by up to 2 million tonnes a month across the continent.
"Virtually from the minute we published our last quarterly price update, negative macro news sent bulls to bears, depressing the global steel sector and all its rating raw materials," the report said.
In the past three months, iron ore spot prices at Chinese ports slipped 35 per cent.
Despite the drop in prices from last quarter, miners would still realise major gains in the next two years.
"With a rebound expected in China''s economy by the second quarter of 2011, we expect iron ore prices to remain range-bound in the $US100 to $US120 a tonne band for much of 2011 and 2012," Credit Suisse analyst Paul McTaggart said.
For BHP, the lower iron ore prices and a fall in other commodity-price estimates mean a reduced 2010-11 earnings forecast of $US21.7bn, down from a previous forecast of $US25.8bn. Because of probable negative near-term catalysts, Mr McTaggart also dropped his rating on BHP from outperform to neutral, making Rio Tinto a better investment recommendation.
He said the company''s Gulf of Mexico costs would probably increase significantly after regulatory changes following BP''s Deepwater Horizon explosion.
There was also a real chance the $US116bn iron ore merger with Rio would not be realised, Mr McTaggart said.
The bank left its rating on Rio Tinto at outperform despite slashing its 2011 earnings forecast by 19.5 per cent, or $US3.4bn, to $US14.17bn.
"Should the proposed iron ore JV with BHP Billiton not be realised, Rio would emerge in a position of strength. Rio is our preferred large cap miner," Mr McTaggart said.
Credit Suisse also cut its uranium price forecast for 2010 by 20 per cent to $US43 a tonne.
"Rampant mine development in Kazakhstan has over-supplied the market in the short term," the bank said.
Separately, Credit Suisse also downgraded Fortescue Metals Group to underperform, from outperform, and cut its target price from $6 to $4.50 a share after Fortescue''s quarterly report last week revealed lower spot prices than expected.
UBS analyst Glynn Lawcock was not so harsh, keeping the Andrew Forrest-led miner on a buy rating with a target price of $5.50, down from $6 previously but a lot higher than the $4.04 the shares closed at yesterday.