A mixed picture has emerged from the trading statements of the big three miners reporting this week. Rio Tinto (ASX:RIO) and BHP Billiton (ASX:BHP) are generally regarded to have exceeded expectations, with Anglo American (LON:AAL) seen as the laggard.
The 10% rise in the sector index suggests that investors are taking their cue from Rio and BHP and ignoring the performance of Anglo, where the problems are seen as the self-inflicted variety.
That said, there is no uniformity of vision among those paid to advise the world’s biggest funds – and the big imponderable is, as always, China.
Bank of America Merrill Lynch’s work of the sector is a case in point. While it is not predicting a hard landing for the world’s second-largest economy, the American broker felt compelled to assess its impact on the miners anyway.
Its hard-landing scenario sees copper trading at US$5,600 a tonne (21% below its own forecast for 2014) and iron ore at US$90 a tonne (down 18% on estimates). The impact on the earnings of the major could be significant if not catastrophic.
However, it has to be said this is a doomsday case. In fact Merrill’s analysis chimes with what is being whispered after the results from mining’s Holy Trinity.
“Economic indicators for steel demand such as housing sales & starts are strong and stronger than anticipated,” the Wall Street brokerage said.
“We think rising spot steel prices speak to a pick-up in economic activity in China.
“In our view, recent comments from Chinese Premier Li should keep GDP growth above a floor.
“China has destocked iron ore, restocking underway Steel mills appear to have destocked iron faster this year than last year, perhaps due to tighter credit conditions.”
Elsewhere, Liberum has been takings stock after the recent spate of updates.
It sees Anglo as underperforming “commodity and foreign exchange moves”, though its stance on the shares remains ‘neutral’.
Rio, BHP and Glencore (LON:GLEN) are each rated ‘buy’, with Rio Liberum’s top pick.
Citi, meanwhile, looks at the relative merits of Rio and BHP Billiton and also plumps for Rio – a ‘buy’ versus BHP’s ‘neutral’.
“If nature plays ball we expect Rio’s production performance to improve in the second half of 2013 and 2014 and gain the upper hand on BHP,” Citi told clients.
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