Citigroup downgrades UK mining and metals sector to 'neutral' and cuts a host of ratings

LONDON (ShareCast) - Citigroup (NYSE: C - news) downgraded its stance on the UK metals and mining sector on Monday to 'neutral' from 'bullish' after cutting its short and medium term outlook for iron ore. Citi now expects iron ore price to $45 per tonne in 2015 and $40 per tonne in 2016. "Under this backdrop we believe the upside in the sector is now capped, however the downside is being protected by dividend yield," said Citi.

The bank also made a host of rating downgrades and price target adjustments for mining shares listed in London.

BHP Billiton (NYSE: BBL - news) has been downgraded to 'neutral' from 'buy' with price target reduced to 1550p from 1800p, Rio Tinto (Xetra: 855018 - news) downgraded to 'neutral' from 'buy' with target cut to 2850p from 3600p, Glencore (Xetra: A1JAGV - news) downgraded to 'neutral' from 'buy' with target cut to 310p from 350p, Lonmin (LSE: LMI.L - news) downgraded to 'neutral' from 'buy 'with target cut to 127p from 145p, Vedanta Resources (Other OTC: VDNRF - news) downgraded to 'sell' from 'neutral' but with target raised to 430p from 410p and Anglo American (LSE: AAL.L - news) downgraded to 'sell' from 'neutral' with target cut to 900p from 1350p.

"We think the self-help, cost cutting and improving capital structure catalysts have played out and the sector is increasingly more vulnerable to lower commodity prices and macro conditions, in particular a strengthening US dollar, slowing Chinese economy and Citi's view of continued oversupply in the bulk commodities," said Citi.

"The mining sector has arguably missed the window to deliver higher shareholder returns, we argued that the miners should have been more aggressive in reducing capacity, particularly in iron, and also selling non-core assets and therefore the downturn is likely to be more protracted," added the US bank.