Rio Tinto: analyst comment from MF Global Securities & Liberum Capital

SOME THOUGHTS ON THE BUILDERS & MINERS

  • Rio Tinto and BHP Billiton down -11.6% and -6.9% respectively in Australia overnight. Although this will take a while to recover, I believe that we have seen this before in this current commodities bull-run (which some say is now over). The risk is clearly there that this time it really is the end of the ‘stronger for longer theme’, but I believe that lower rates, further industry consolidation and China and India will do their work again;
  • US and UK housing is going to stabilise in my opinion restarting the ‘cyclical chain’. As you know US housing always takes the global economy in and out of a recession in the US, then followed by Europe and then at the latter stage emerging markets. Emerging markets this time around have held up more strongly given that there is structural shift. Without this we would have already been in recession;
  • Our view is that a stabilisation and slow recovery in US housing should now reignite the ‘cyclical chain’. So as opposed to being all doom and gloom look to what US and UK housebuilding shares do, which will give you an idea about the rest of the cyclicals; and
  • It will be important to see what Xstrata is up to, the earliest proponent of the ‘stronger for longer theme’. Most newspapers read the current situation as if the discussions with Vale were focusing on an outright sale. WE ARE NOT SO SURE. XSTRATA AND VALE MIGHT JUST AS WELL TURN THE TABLES ON SOMEONE ELSE SUCH AS RIO TINTO AND ANGLOAMERICAN.