Commodity market forces low expectations

The ongoing commodity price slide has seen BHP shares reach the lowest point on the ASX in more than ten years, lower even than the trough caused by the Global Financial Crisis.

Currently trading at $16.37 per share, the last time BHP saw such a price was on the back of a burgeoning iron ore trend in 2005, when it was the highest price ever fetched for the global miner.

In the past 12 months BHP shares have slipped more than 50 per cent, with iron ore having fallen from the $80 mark down to close the year in high $30’s without taking an additional hit.

Although analysts still rate BHP as low risk, Business Spectator recommended a sell order on the blue chip miner.

Rio Tinto, similarly positioned, is more attractive than BHP but still not a confirmed buy status according to Sydney-based investment firm Intelligent Investor.

Resource analyst Gaurav Sodhi said the English miner has the lowest cash cost for iron ore production in the industry, driving down from $24 to $15 per tonne over the past few years.

“Rio Tinto generates the best margins on iron ore, it is by the far the best mover of material in the world, and it creates the most efficient logistics,” he said.

“We still see it as a quality stock even at this point in the market cycle but it’s not attractive enough to buy if you take into consideration the weak iron ore prices.”

Sentiments for these two global miners are nowhere near as dire as for Anglo American, which has analysts warning of a prospective credit cut to junk status in the face of further losses to the commodity slump.

Anglo announced last week it would suspend its dividend for the second half of 2015 and 2016 as in a desperate bid to hold up their balance sheet, and this was followed by Standard & Poor’s downgrading of confidence in the miner’s credit rating.

However, the New York analyst said Anglo American’s cash balance of $7 billion and an equal portion in bank credit lines will help the miner to weather the current storm of market volatility.

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