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Axiom's Johnson Downgrades Rio Tinto To Sell

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Axiom's Johnson Downgrades Rio Tinto To Sell

With the copper and aluminum markets much worse than earlier expected, Axiom’s Gordon L. Johnson II believes the risks facing these markets would create increased risk EPS revisions for Rio Tinto plc (ADR) (NYSE: RIO).

Johnson downgraded the rating on Rio Tinto to Sell, with a price target of $14.

Iron Ore Prices

The analyst pointed out that analysis suggests that the global Chinese iron ore market is likely to be oversupplied by 206mt in 2016. Even if there is a balanced market in 2016, the Chinese market could still be oversupplied by 84 mt.

Johnson expects iron ore prices at about $30/mt by the end of 2016. However, given that the consensus expectations for iron ore price are higher, the analyst expects increased downside risk to the company’s EPS.

Related Link: Argus Initiates Rio Tinto With Buy Rating, $36 Target

Copper Markets

Copper accounted for 15 percent of Rio Tinto’s EBITDA in 2015. At the same time, despite the 26.3 percent year on year decline in copper prices in 2015, Johnson noted that miners have not adjusted their aggressive forward ramp plans.

Supply is therefore slated to increase 4.1 percent year on year in 2016. “After 5yrs of supply deficits, we expect the next 5yrs, beginning in ’16, to be defined by unprecedented copper excesses,” Johnson stated.

Aluminum

Aluminum accounted for 24 percent of the company’s EBITDA in 2015, although prices fell 20 percent year on year.

“With cost-competitive Chinese projects slated to add an incremental 5 percent to global capacity,” Johnson expects aluminum prices to moderate.

Image Credit: Public Domain

Latest Ratings for RIO

DateFirmActionFromTo
Feb 2020RBC CapitalDowngradesSector PerformUnderperform
Jan 2020BMO CapitalDowngradesOutperformMarket Perform
Oct 2019JefferiesUpgradesHoldBuy

View More Analyst Ratings for RIO
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