Sell iron ore miners is the contrary stance being taken by broker Haitong, which can see little appeal if bulk metal prices retreat as expected in coming months.
“Like consensus, we believe that US$80/t is unsustainable, but we also believe that softer commodities trump other factors for miners such as balance sheets, higher returns and so on," said Haitong’s mining analyst Andrew Keen.
On his estimates, dividend yields recover to 3-4%, which is not enough to buy the sector given the propensity for bulk commodity prices to fall far and fast.
On a company basis, Haitong is a seller of BHP Billiton (LON:BHP) despite a raised target price of £11.10 (£10.50), copper specialist Antofagasta (LON:ANTO) where its target rises to £6.90 from £5.00 and Glencore PLC (LON:GLEN) with a 240p target.
Rio Tinto PLC (LON:RIO) is a hold, with a raised target price of £32.37 (£30.70) along with Anglo American (LON:ALL), which it says has been rescued by the recovery in bulk commodity prices and diamonds.
"Superficially, it’s a great market for miners. Chinese demand has been OK, commodity prices have rallied strongly and there is a potential stimulus promised in the US.”
China is key to any developments in the iron ore market, but the majority of Chinese iron ore import growth over the past three years has come either from a growth in steel exports or a displacement of domestic mine supply, not Chinese local demand growth.
“Both of these factors look to have run their course and the suppression of domestic mine supply was only achieved by forcing prices down.”
Dig a bit deeper and there are also worrying signs of a return to pre-crisis thinking among the miners, Keen adds.
Pointing at UK giant Rio Tinto PLC’s (LON:RIO) recently announced share buyback, Keen says this is a retrograde step.
“Cutting dividends at the start of 2016, only to then twelve months later use excess cash to buy back stock now their equity has doubled in price is a return to sell low/buy high capital management.”
“Reverting to pro-cyclical buybacks is a worrying return to value destruction in our view, and we believe excess cash being used for special dividends is a better strategy.”