Broker snap: BHP to outperform iron ore peers, says Nomura

31st Aug 2012 10:51

Nomura reduced its target prices for a group of iron ore producing stocks on Friday on the back of falling prices but has highlighted BHP Billiton as its sector preference."In response to falling Chinese steel prices as a result of oversupply concerns and associated aggressive raw material destocking, iron ore and coking coal prices have fallen significantly over recent months and are now below an expected USD100/t floor. Spot prices of USD90/t for iron ore and USD 160/t for coking coal are now in line with Nomura's long-term/marginal pricing assumptions," the broker said in a research report on Friday.Nomura said that both commodities have now moved into the "cost curve" which should see producers curtail high cost production and slow growth ambitions."Short-term price volatility is likely to continue until the market finds a floor (eg, now impinging on high cost Indian iron ore production). However, prices could begin to recover in 4Q 12 as low inventories are replenished."Significantly, Chinese steel production is yet to moderate in response to lower domestic steel prices. Current prices imply a substantial deterioration in steel demand beyond current expectations."While all diversified miners are exposed to bulk commodities, Nomura reckons that BHP will likely outperform its peers in the current market due to its "more diversified/defensive portfolio".As for the others, the broker said that: Rio Tinto may be the lowest cost iron ore producer but near-term earnings are leveraged and "not without risk"; higher costs/leverage assets leave Anglo American and ENRC as the least preferred stocks.Nomura has made the following changes to its coverage:Anglo American: target reduced from 2,200p to 2,100p, 'neutral' rating kept. BHP Billiton: target reduced from 2,100p to 2,000p, 'buy' rating kept. ENRC: target reduced from 400p to 375p, 'reduce' rating maintained. Rio Tinto: target reduced from 81p to 70p, 'buy' rating kept. BC