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BHP downgraded at Barclays on China and iron ore concerns

The risk to iron ore prices has arisen much faster than expected

BHP
Iron ore is key to BHP's earnings

Barclays has downgraded its stance on iron ore giant BHP Group PLC (LSE:BHP) due to economic problems in China, while simultaneously making Glencore PLC (LSE:GLEN) its top pick in the mining sector.

BHP is now rated a hold/equal weight due to its recent strong relative performance, premium valuation and iron ore exposure now greater than Rio Tinto, said analysts at the bank.

The risk to iron ore prices has arisen much faster than expected, they added, and reflects reflecting China's rapid steel production cuts.

On the basis these extend into 2022 and beyond to mitigate steel industry emissions and combined with slowing demand and mid-term supply growth, the bank has lowered its price expectations for the metal and its view on companies that produce it, such as BHP.

Glencore is now Barclays highest conviction 'overweight' recommendation, reflecting an "attractive valuation (28% FCF yield, 3.9x PE), earnings momentum (117% M2M vs. cons), cash returns and catalysts" and is now its top pick in the sector.

BHP dipped 1.3% to 2,053p while Glencore shed 0.8% to 337.3p.

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