Two weeks into the new year and this big hitter has changed its view on this mining heavyweight.
Some valuations in the commodity sector are starting to look full, a City bank warned today after its “mid-cycle sanity check” led to a downgrade for mining giant Rio Tinto (LSE:RIO).
Analysts at Deutsche Bank said investors should be more selective following the sharp recovery for commodity prices on the back of vaccine rollouts and sustained demand in China.
Rio is no longer among the bank's ‘buy’ recommendations, although it continues to back Glencore (LSE:GLEN) and Anglo American (LSE:AAL) after raising their price targets to 320p and 3,000p respectively.
Deutsche Bank expects a cyclical peak in commodity consumption growth rates and prices around the middle of this year. On copper prices it has raised its short and long-term targets by between 10% and 20% and now sees the market in a sustained deficit over the medium-term.
The “stronger-for-longer” view on iron ore now appears more than priced in, however, and the bank is also more bearish on gold after forecasting a price of $1,750 by the end of the year.
Mining stocks have risen sharply in recent weeks, with sentiment given a further boost over recent days by the increased prospect of major US stimulus. BHP Group (LSE:BHP) is now at its highest level in a decade at 2,166p after jumping 130% from its March low and by 45% from the end of October.
Rio, which fell back 56p to 6,072p in the wake of today's downgrade, has also risen 30% since the start of December.
Deutsche said: “The sector has enjoyed a powerful recovery over the past nine months and valuations for some names are looking full. We were bullish on the sector through 2020, but now take a more stock selective approach.”
The bank's mining outlook also highlights the potential impact of a new crop of CEOs taking over at big-cap miners, providing them with an opportunity to re-set strategies and optimise portfolios for the low-carbon transition.
The note adds: “We believe Glencore (simplification) and BHP (exiting oil) have the most to gain from repositioning their portfolios.
“Decarbonisation and climate strategy will be critical in 2021, in our view, with a heavy schedule of policy updates across the globe.”
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The bank's price targets have been updated to reflect the recent momentum, with Glencore the subject of a 70p increase and Anglo American 400p higher. Rio Tinto is 900p higher at 6,000p but is no longer a ‘buy’ recommendation, while Deutsche has increased BHP from 1,700p to 2,050p.
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