By Carla Mozee, MarketWatch
Citi, S&P lower views on iron-ore sector
LONDON (MarketWatch) -- U.K. stocks on Monday fell for the first
day in three sessions, as mining stocks struggled following
downbeat outlooks for the iron-ore sector.
The FTSE 100 finished 0.4% lower at 7,064.30. The blue-chips
index on Friday closed up 1.1% at 7,089.77
(http://www.marketwatch.com/story/ftse-100-at-record-high-as-shire-property-stocks-gain-2015-04-10),
a record close.
The basic materials group on Monday fell more than 1% as Citi
cut its stance on the iron-ore sector to neutral from bullish, in
line with major forecast revisions by Citi's commodity team. Citi
said iron-ore prices are likely to drop to $36 a metric ton and
average $45 a metric ton this year, with pressure coming in part
from slowing demand from China as well as an increase in
supply.
Shares of BHP Billiton and Rio Tinto , the largest producers of
iron ore, fell 3.3% and 0.8%, respectively.
Separately, Standard & Poor's cut its iron-ore price
forecasts for 2015, 2016 and 2017, and placed several iron-ore
producers on watch for possible credit-ratings downgrades. "In our
view, lower iron ore prices may not only weaken producers'
operating cash flows and financial leverage, but may also affect
the long-term resilience of some companies' business risk profiles,
given the higher-than-anticipated earnings volatility due to
iron-ore-price swings," it said.
Citi dropped its rating on BHP to neutral from buy and moved it
off its European focus list. "One concern with BHP is cash-flow
generation where further cuts to capex will be required to prevent
debt rising further, particularly after the reduction in cash-flow
generation after the S32 demerger," said the analysts.
BHP shareholders on May 6 will vote on the proposed spinoff of
South 32, which will focus on production of aluminum, coal, nickel
and other assets.
Citi also cut its rating on Rio Tinto, to neutral from buy, and
downgraded Anglo American PLC to sell from neutral. Anglo shares
fell 2.3%.
Pearson PLC shares fell 1.9% after Jefferies downgraded the
publishing firm to underperform from buy, as "[r]ecent performance
has taken the stock to a lofty multiple."
Monday's advancers included precious-metals miner Fresnillo PLC
and energy-engineering company Weir Group PLC , which gained 0.9%
and 0.6%, respectively. Banking stocks also gained, led by a 1.2%
rise for Royal Bank of Scotland PLC .
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