Cap Falls in Chile as Security Says Sell on China Outlook

Cap SA, Chile’s largest producer of iron-ore, sank after Grupo Security SA recommended selling the stock, forecasting lower demand for the steel-making ingredient in China and a decline in prices.

Cap dropped 2.2 percent to 10,775 pesos at the close of trading in Santiago. It was the worst performance among the 21 members of the MSCI Chile index, which retreated 0.6 percent.

Grupo Security restarted coverage of Cap with an “underweight” recommendation and set an 18-month target price of 11,000 pesos. The financial services company said growth in steel production in China will probably slow to 4 percent in 2015 from an average 15 percent annually over the past decade. The slowdown will come while iron-ore prices fall as new mines open, analyst Luis Felipe Galleguillos wrote in a note to clients.

“Lower iron-ore prices and higher costs will have an effect on Cap’s operating margins,” he wrote. Expansions at Cap’s iron mines will produce the material at a higher average cost than its current sites because of steeper energy costs, according to Galleguillos.

Cap has fallen 33 percent in 2013, the worst performance among members of the MSCI Chile index after fertilizer producer Soc. Quimica y Minera de Chile SA.

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