Broker snap: Rio to benefit from rising iron ore prices

13th Dec 2010 11:44

Nomura's 2011 forecasts for Rio Tinto are ahead of consensus as the broker expects average realised iron ore prices to rise substantially more.The broker sees supply growth limited to 9% as increasing shortages of skilled labour and environmental issues continue to delay large expansion projects, "which should push up the theoretical deficit to around 50m tonnes," says analyst Paul Cliff.While consensus estimates are for a price increase of around 15-20% on 2010 levels, the broker foresees a sharper rise of 40% reflecting the tightness in supply.Therefore, the broker expects earnings per share for the miner to be $9.90 in the year to December 2011 versus the consensus figure of $8.40, as the group's earnings are driven primarily by the iron ore price (two-thirds its earnings before interest, tax, depreciation and amortisation source from its iron ore business).Also, with Chinese steel production continuing to grow, keeping demand ahead of supply growth and supporting high prices, the broker confirms its 'buy' rating on the shares.