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Sell Rio and BHP as China indicator turns bearish, says broker

Published: 12:29 04 May 2022 BST

China Covid
“Currently we are seeing the sharpest withdrawal of aggregate funding from the real estate sector on record.”

One of the key indicators for the mining sector has just turned bearish for the first time in eleven months, according to broker Liberum which has downgraded the three mining giants as a result.

The restocking indicator has just switched to a sell signal, explained the broker, reflecting China’s very strong finished inventory levels and sluggish domestic demand growth.

“It’s bearish news for iron ore and coking coal, ahead of the seasonal cool down in the steel industry.”

Liberum says its price forecast of US$90/t benchmark iron ore fines in the third quarter remains unchanged but evev so BHP and Rio Tinto are downgraded to 'sell' and Anglo American to 'hold'.

China dominates iron ore markets and there has been much excitement about a renewed infrastructure push, said the broker.

“However, infrastructure just does not move the needle (15% of total steel supply) like real estate (40%).”

“The sharp industrial/commodity downturn coincided with the weakness in real estate from 2013 to beginning of 2016, whilst real estate investment stayed strong.

“Currently we are seeing the sharpest withdrawal of aggregate funding from the real estate sector on record.”

Shares in Rio dropped 2% to 5,522p, BHP shed a similar amount to 2,676p and Anglo 1% to 3,543p.

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