Tuesday tips round-up: BHP Billiton, Rio Tinto, Vale, Lonmin

12th May 2015 14:52

Iron ore prices have halved over the last year, notwithstanding a recent bounce, as the main producers - Rio Tinto, BHP Billiton and Vale - have moved to raise production. Investors should not misread recent hints of future production cuts from the likes of BHP. None of the majors has in fact cut back. BHP won't be spending as much on new capital outlays but this is because that is because it has been getting more bang for its buck. On the demand side of things, Chinese steel producers are looking to export as domestic steel production shows signs of peaking. Hence, that is an unlikely source of fresh demand for this key ingredient in steel making. The big iron ore miners can extract decent profits from the current price of about $60, analysts at Bernstein calculate. However, if the price falls back towards recent lows below $50 per tonne higher cost rivals will struggle, although the likes of Anglo American and Fortescue will manage to breathe. Unfortunately, Credit Suisse sees Chinese steel production retreating until 2018 and there are no signs of increased demand elsewhere. Iron ore prices have had a good bounce, but wait this rally out says the Financial Times's Lex column.Platinum prices will not recover over the next two years. That was the verdict from management at the precious metals' producer Lonmin when it last released results and they are probably correct. That is bad news given the firm's razor thin margins. Its costs of production were running at 10,500 rand at last take in comparison to an achieved price of 11,260 rand. To fund its capital expenditures the company is looking to slash 10% of its staff.Outlays on new investments have also been cut by almost two-thirds over the last four years, to reach $160m. Then there are the problems encountered with its smelter, which impacted on production. There are doubts about its ability to meet production targets and the restart of its dividend payments is not in sight. "Avoid for now, I would still not be buying shares in the platinum producers now, though," writes The Times's Tempus column.