Miners take toll on FTSE after broker downgrades

Mining stocks took a heavy toll on the FTSE 100 on Monday after a series of downgrades from Citigroup.

The shakedown on commodities markets - especially the decline in iron ore prices - promoted a wide-ranging review of the broker's stance on the heavily-weighted sector, which formed the bulk of the list of the biggest fallers in morning trade and pulled the main London index into negative territory.

Citi cut its overall rating on the sector from "bullish" to "neutral" in a note entitled "The End of the Iron Age".

It said: "The mining sector has arguably missed the window to deliver higher shareholder returns, we argued that the miners should have been more aggressive in reducing capacity, particularly in iron, and also selling non-core assets and therefore the downturn is likely to be more protracted."

"We think the self-help, cost-cutting and improving capital structure catalysts have played out and the sector is increasingly more vulnerable to lower commodity prices and macro conditions, in particular a strengthening dollar, slowing Chinese economy and Citi's view of continued oversupply in the bulk commodities.

"The upside in the sector is now capped, however the downside is being protected by dividend yield."

Citi reduced its average iron ore price forecast to $45 a tonne for 2015 from $58 and $40 a tonne for 2016 from $62. It also predicted "a tough 1-2 years for the mining sector until we clear the surplus capacity in the bulk commodity prices".

Shares in Anglo American led its peers lower after Citi cut its rating on the stock to "sell". It also placed a "sell" rating on Vedanta Resources, which made the biggest single loss on the FTSE 250, down 2.5 per cent to 505p.

The broker named Antofagasta as its "least preferred" stock in the sector. The Chilean copper miner's shares fell 1.5 per cent to 729½p.

BHP Billiton fell 1.4 per cent to £14.43 after Citi reduced its rating on the shares to "sell" and removed it from its "Focus List Europe", of their top stock picks in the region.

Across the sector, the FTSE 100's metals and mining sub index fell 1.3 per cent. Overall, the main London index was down 0.3 per cent at 7,067.29, easing back from the fresh record high it reached on Friday.

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