Broker snap: Citi turns 'bullish' on miners for first time in three years

16th Jan 2014 09:57

Mining stocks were performing well in London on Thursday morning after Citigroup lifted its 12-month stance on the sector from 'neutral' to 'bullish', representing its first positive outlook for the industry in three years.The bank has labelled BHP Billiton, Rio Tinto and Glencore Xstrata as its "key picks" in the sector. 'Buy' ratings have been maintained for Rio Tinto and Glencore Xstrata, while BHP Billiton has been lifted from 'neutral' to 'buy'.Citi said: "While we remain concerned about the potential long-term structural demand story for commodities in China, and we are cognisant of a potential seasonal slowdown in the first quarter of this year, our move to 'bullish' reflects better bottom-up fundamentals, particularly from the major miners. "We would rather be too early than too late in making this call."The bank believes that investor sentiment will begin to improve after having hit "rock bottom": "The mining sector has moved through five stages of grief, namely: Denial, Anger, Bargaining, Depression and we now think we are in Acceptance that the sector has moved into a new norm."Meanwhile, with a flat commodity price environment expected in the near term, Citi foresees a reduction in volatility across the sector."Improvements in European and US growth are supportive for commodities and weakening commodity currencies are providing a fillip for the miners. Against this backdrop the mining companies are cutting costs, improving balance sheets and aligning with shareholders, which are resulting in an inflection point in the secular trend of economic value added creation."However, the bank has maintained its underweight position in the gold and base-metals sector, with its least favoured large-cap miner being Anglo American.BC