Predicting weaker copper and iron ore prices as coronavirus weighs on metal demand, analysts at RBC Capital Markets have downgraded Antofagasta PLC (LON:ANTO) and Rio Tinto plc (LON:RIO).
“Mining equities and commodities could remain under pressure in the near term as the market digests the impact of the coronavirus outbreak,” the Canadian broker’s analysts said in a series of notes to clients on Tuesday.
For copper, RBC cut its 2020 price forecast to $2.70 per lb from $3.00/lb as analysts see “potential for weaker prices in the near term which could improve later in 2020 if China uses stimulus to recover from the outbreak”.
There remained a “lingering issue” that if copper inventories build and move away from the low levels that justify higher prices, “the market is no longer as tight as it looked coming into 2020”.
Looking at copper miner Antofagasta, RBC reckons it faces an “unenviable position” of potential lower copper prices at a time the company is mining weaker grades and has high requirements for capital expenditure.
The FTSE 100 company is spending US$1.3bn on its Los Pelambres mine and expects to make a decision over the circa-US$2.7bn project at Centinela next year.
“Although we think this counter-cyclical investment makes economic sense, it leaves the equity vulnerable over the coming 12 months,” the RBC analysts said, downgrading to ‘underperform’ from ‘sector perform’ with the price target cut to 740p from 850p.
Over at Rio Tinto, RBC’s assessment of the impact from the Coronavirus has led the analysts to tweak down their forecasts for iron ore prices in the first half of the year and cut them by 6% for the whole of 2020.
“We see a sharp drop in Chinese domestic iron ore production helping the market to stay balanced in 2020, which should also see an acceleration of demand in H2.”
While the reduction from the recently escalated iron ore prices will continue to mean downside for RIO's financials, the analysts said they believe the underlying company remains in a “fundamentally strong position”.
Nevertheless, Rio's shares were also downgraded to ‘underperform’ from 'sector perform', with a reduced target price of 3,300p down from 3,800p previously.