Rio, Kazakhmys Raised by Barclays on Chinese Outlook

Rio Tinto Group (RIO) and Kazakhmys Plc (KAZ) had their stock recommendations raised by Barclays Capital, with the bank saying investors should increase their holdings of mining companies as the outlook for Chinese demand improves.

Rio was raised to “overweight” from “equal weight” and Kazakhmys to “equal weight” from “underweight,” London-based analyst Christopher Lafemina wrote today in a report. Xstrata Plc (XTA) and Vedanta Resources Plc are the bank’s top picks with the “highest potential upside,” he added.

Demand for commodities in China, the largest consumer of industrial metals and raw materials such as coal and iron ore, may expand because of a $586 billion economic stimulus package. Manufacturing in the country grew for the first time in nine months in April, CLSA Asia-Pacific Markets said on May 4.

“While we expect mining shares to be volatile, and the sector to have occasional pullbacks, we recommend that investors increase their exposure to the mining sector in general,” Lafemina wrote. After a visit to China last week and talks with steel producers “our view now is that the demand outlook for mining commodities has improved,” he wrote.

Barclays raised its price forecast for coking coal in the 2010 Japanese fiscal year by 25 percent to $150 a metric ton and for 2011 by 15 percent to $150 a ton after the outlook “improved due to supply constraints in China.”

Vale Cut

Thermal coal in Australia will sell for $75 a ton in 2010, up from the prior forecast of $65 a ton. The price in 2011 will also be $75 a ton, up from $70 a ton previously, Barclays said.

Australian and Brazilian iron ore will drop by 30 percent this contract year, which starts April 1, compared with the previous forecast cut of 20 percent for Australian ore and a 15 percent decline in Brazilian fines, Lafemina said.

Cia. Vale do Rio Doce, the largest iron-ore producer, was cut to “equal weight” from “overweight,” by Barclays.

Iron-ore imports at major Chinese ports rose 24 percent from a year earlier to a record 53.5 million tons last month, the Ministry of Transport said yesterday.

To contact the reporter on this story: Brett Foley in London at bfoley8@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.