Another day another dollar..... good news everywhere you look, Dow up, Baltic dry index up, China economy up,etc etc.
Fmg up 14.5% in 3 days, wots up today ???
-------------------------------------------------------- Rio, ‘BHP on Steroids,’ Shrugs Off Spy Claims as Shares Gain Share | Email | Print | A A A
By Rebecca Keenan
July 17 (Bloomberg) -- China’s detention of four Rio Tinto Group executives on spying claims hasn’t yet dimmed the optimism of investors for the world’s third-largest mining company as they seek to benefit from a global recovery.
Rio is like BHP Billiton Ltd. “on steroids,” said Albert Landman, a fund manager in Melbourne at Stonebridge Group, which owns BHP and Rio shares. “If you are looking for the recovery play and you are bullish about the future,” then London-based Rio is the preferred stock, he said.
Rio shares have risen 5.6 percent since Stern Hu, the head of iron ore operations in China, and three colleagues were detained July 5, while its credit default swaps, a measure of default risk, have dropped 9.6 percent. The company expects further recovery in Chinese steel demand in 2009 after this week reporting record second-quarter iron ore output from Australia.
“We are becoming increasingly positive on the outlook for iron ore with spot prices increasing and global steel production expected to recover somewhat in the second half of 2009,” Goldman Sachs JBWere Pty analysts led by Neil Goodwill said in a note after the production report. “This should provide some upside” to Rio’s earnings.
Rio gained 4.6 percent to A$52.40 in Sydney yesterday on the Australian stock exchange. Melbourne-based BHP, the world’s biggest mining company, rose 1.8 percent to A$34.91 yesterday, and has gained 4.4 percent since July 5.
Chinese authorities last week said they had evidence that Hu, an Australian citizen, and three Chinese colleagues stole state secrets. China accuses Hu of bribing steel executives during ore price talks, Australia’s Foreign Minister Stephen Smith said July 10. Hu’s detention comes amidst a reported crackdown by the government on the iron ore market in China.
Political Issue
“Whilst I think it is politically a very important issue it has just been put on the backburner day to day on the markets,” Stonebridge’s Landman said. “In the very short term we will be ruled by macro situations,” he said, citing rising spot ore prices and a rebound in equity markets.
China’s economy rebounded from its weakest growth in almost a decade, the government said this week. The International Monetary Fund said this month the global economic rebound next year will be stronger than it forecast in April as the financial system stabilizes.
Imports of iron ore by China, the biggest buyer, rose 3.4 percent in June to the second highest this year, according to Chinese customs data, while spot ore prices are trading at a nine-month high. Rio this week reported an 8 percent jump in second-quarter iron ore production.
Rio’s iron ore output beat UBS AG’s estimates by 16 percent, Sydney-based analysts of the broker said in a report. Iron ore is Rio’s biggest contributor to earnings.
‘Better Growth’
“Given the expectation of better growth in the second half of 2009 in the U.S. and Europe, coupled with continued strength in Chinese demand, we maintain our buy rating,” said the UBS analysts led by Glyn Lawcock, the top ranked Rio analyst, according to Bloomberg data. He has a 12-month target price of A$66 on Rio’s Australian shares.
UBS prefers Rio over BHP, citing its greater discount to net present value. UBS has a “buy” recommendation on Rio and a “neutral” rating on BHP. Credit Suisse Group AG’s Paul McTaggart, the second-ranked Rio analyst, has an “outperform” recommendation and a “neutral” on BHP.
Some of China’s largest mills have agreed to a “provisional” 33 percent price cut offered by Rio, the world’s second-largest exporter, Umetal Research Institute said this week. The China Iron and Steel Association, comprising steel and trading companies, is still negotiating with Rio on a benchmark contract price, an official said July 15.
The Hu case has had no affect on the business of Sino Gold Mining Ltd., Chief Executive Officer, Jake Klein, said yesterday on a call with analysts and reporters. The Sydney-based company operates two mines in China and is building a third.
“I don’t believe it’s going to have a long term impact on the relationship between Australia and China,” Klein said. “We are so short of facts at the moment.”
FMG Price at posting:
$4.00 Sentiment: Buy Disclosure: Not Held
(20min delay)