Zacks Industry Outlook Highlights: BHP Billiton Limited, Freeport-McMoRan, Vale and Rio Tinto

Error Saving Reaction


Zacks Industry Outlook Highlights: BHP Billiton Limited, Freeport-McMoRan, Vale and Rio Tinto

For Immediate Release

Chicago, IL –August 04, 2017 – Today, Zacks Equity Research discusses the Industry: Industrial Metals, Part 1, including BHP Billiton Limited’s (NYSE:BHP – Free Report), Freeport-McMoRan Inc.’s (NYSE:FCX – Free Report), Vale S.A. (NYSE:VALE – Free Report) and Rio Tinto plc’s (NYSE:RIO – Free Report).

Industry: Industrial Metals, Part 1


Industrial metals such as iron, aluminum, copper are essential for most of the technology and infrastructure used in our daily lives. Thus, President Trump’s promise to invest heavily in infrastructure provided a boost to industrial metals prices. Growth in the U.S. GDP and continued improvement in end use sectors like automotive, aerospace, construction and packaging will sustain increased demand for metals.

Further, industrial metals have been benefiting from China’s drive to halt some of the metal’s production to fight air pollution. Let’s take a closer look at the price movement of a few important metals so far this year and what lies ahead.


Iron ore prices have been on a roller coaster ride so far this year. After marching toward a high of $95 per ton in Feb 2017, prices slumped to $57 per ton in June. Of late, prices have again picked up to the $70 per ton level in July.

China has been the primary catalyst for the recent surge in iron prices. Release of strong second-quarter GDP figures renewed optimism. The official sub-index for activity growth in construction sector hit 62.5 in July, the highest in almost four years. Also, tougher and more frequent environmental inspections on steel plants guilty of polluting have dented steel production and have impacted iron ore prices significantly.

Chinese traders are worried about a supply crunch and low stockpiles; consequently, imports have picked up. In the first six months, imports rose 9.3% to 539 million tons.


Aluminum industry fundamentals have improved considerably since 2016 and aluminum markets recorded supply deficit in 2016, the first in a decade. During the first six months of 2017, the average LME aluminum price touched USD 1,880.56 per ton, a 22% increase from the prior-year average.

Aluminum prices have been gaining this year owing to an improved supply-demand dynamics, the Trump win and higher coal prices. China’s directive towards capacity cut and Trump’s insistence on trade reforms have inflicted positivity in the market lifting aluminum prices.


After vastly underperforming compared with other metals in 2016, copper experienced a sudden spike at the end of 2016. Pick up in global manufacturing activity and hopes about Trump's $500 billion infrastructure drove the red metal’s recovery. Copper has gained 13% so far this year and is trading 28% higher than last year. Renewed optimism about economic strength in top consumer China and indications of tighter global mine supply aided prices.

Supply disruptions at some of the key copper mines including BHP Billiton Limited’s (NYSE:BHP – Free Report) Escondida mine in Chile earlier this year and strike action at Freeport-McMoRan Inc.’s (NYSE:FCX – Free Report) Grasberg operations in Indonesia led to the decline in mined copper production and provide a boost to the price.

Industry Positioning - Mixed Bag

The Zacks Industry Rank relies on the same estimate revisions methodology that drives the Zacks Rank for stocks. The way to look at the complete list of industries is that, we put our X industries (all 265 of them) into two groups: the top half (i.e., industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

In the last 10 years, using a one-week rebalance, the top half beat the bottom half by a factor of more than 2 to 1. (To learn more visit: About Zacks Industry Rank)

Within the Zacks Industry classification, the Mining-Iron and Mining-Non Ferrous industries (aluminum, copper, etc.) are grouped under the Basic Material sector (one of 16 Zacks sectors). The non-ferrous mining industry, with a Zacks Industry Rank #123, remains in the top half.  However, the iron mining industry occupies a space in the bottom 6% of the Zacks classified industries with a Rank of #241.

Improved Performance

In the past year, the Mining-Iron and Mining-Non Ferrous industries have recorded respective rise of 76.5% and 22.5%. The industries have outperformed both the Basic Material sector’s increase of 14.6% as well as the S&P 500’s corresponding advance of 13.5%.

Attractive on the Valuation Front

Valuation looks attractive for both the industries going by the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) multiple, a preferred valuation metric for cyclical industries like iron and non-ferrous industries. The mining-iron industry has a trailing 12-month EV/EBITDA multiple of 4.85 and the mining-ferrous industry has a trailing 12-month EV/EBITDA multiple of 8.65.

Both of these compare favorably with the broader Basic Materials Sector’s EV/EBITDA multiple of 11.49 and S&P 500 EV/EBITDA multiple of 10.81. Both of the industry’s lower-than-market positioning calls for more upside ahead.

Q2 Earnings Scorecard, Projections

So far, 60% of the S&P 500 members in the basic materials sector have reported second-quarter results and logged a 9.7% increase in earnings. Taking into account the rest of the companies that have yet to disclose numbers, earnings will rise 6.2% for the quarter. (Read more: Q2 Earnings Season Past the Halfway Mark)

What’s in Store?

Iron: Global steel production rose 4.5% year on year during the first six months of 2017 to 695 million tons. Despite contracting in June by 1.7% US steel output still grew 1.3% in the first half after two years of contraction as higher prices encourage the revival of idled plants. Strong steel demand growth in developing countries will offset stabilizing demand in developed economies. This will boost demand for iron ore.

The supply surge resulting from Vale S.A. (NYSE:VALE – Free Report) S11D, Rio Tinto plc’s (NYSE:RIO – Free Report) Pilbara projects, and BHP Billiton’s projects will create a surplus in the already well supplied iron ore market. However, China is planning to cut steel capacity to reduce pollution in the country and by 2020, the government aims to trim 100-150 million tons of steel capacity. Sustained capacity rationalization could lead to higher steel prices, which in turn should support iron ore prices.

Aluminum: Global aluminum markets are expected to be in a deficit in 2017. Chinese demand, which accounts for about half of the total demand, is likely to be sustained by the building and construction sector as well as the automotive and railway sectors. With the country deciding to cut capacity, supply will also be in check.

Moreover, in North America, demand should remain robust, mainly due to building and construction, automotive, packaging and airline industries. India appears promising given its current low levels of aluminum consumption and high urban population growth.

Copper: As per the International Copper Study Group (ICSG), copper is headed for a deficit of about 150,000 metric tons in 2017 and about 170,000 tons in 2018. Copper prices are likely to be influenced by demand from China and emerging markets, as well as economic activity in the U.S. and other industrialized countries.

The timing of the development of new supplies of copper, along with production levels of mines and copper smelters are also anticipated to influence price. The long-term fundamentals of the metal remain positive, supported by its significant role in the global economy and a challenging long-term supply environment.

Zacks Industry Rank

Within the Zacks Industry classification, health insurers are broadly grouped in the Medical sector (one of the 16 Zacks sectors).

We rank 265 industries into 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. We put our X industries into two groups: the top half (industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by more than twice as much. The Zacks Industry Rank is #177 (bottom 34%). The ranking is available on the Zacks Industry Rank page.

Strong Stocks that Should Be in the News

Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year.See these high-potential stocks free >>.

Get the full Report on BHP - FREE

Get the full Report on FCX - FREE

Get the full Report on VALE - FREE

Get the full Report on RIO - FREE

Follow us on Twitter:

Join us on Facebook:

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339


Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit information about the performance numbers displayed in this press release.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
VALE S.A. (VALE) : Free Stock Analysis Report
BHP Billiton Limited (BHP) : Free Stock Analysis Report
Rio Tinto PLC (RIO) : Free Stock Analysis Report
Freeport-McMoran, Inc. (FCX) : Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research

Views: 86
Author: Regular Articles
Tell a friend
Average rating:
(0 votes)
Average rating from Reviews:
(0 votes)

Write a review


Zacks Industry Outlook Highlights: Freeport-McMoRan, Newmont Mining, Golden Star Resources, Randgold Resources and Kinross Gold

Zacks Industry Outlook Highlights: Freeport-McMoRan, Newmont Mining, Golden Star Resources, Randgold Resources and Kinross Gold Read More

Gold Mining Stock Outlook - Sept. 2017

Gold Mining Stock Outlook - Sept. 2017 Read More

Why Freeport-McMoran (FCX) Stock Might be a Great Pick

Freeport-McMoran (FCX) is seeing solid earnings estimate revision activity, and is a great company from a Zacks Industry Rank perspective. Read More

Friend of slain Georgia Tech student: 'If Scout was more gender-conforming, would it have been different?'

Scout Schultz, a Georgia Tech student, was shot by campus police on Saturday night, and a protest two days later led to arrests. In the aftermath of those events, Yahoo Lifestyle talked to a friend... Read More

How to Make Healthy Leftover Turkey Tacos

These tacos get a healthy makeover by using turkey as the main lean protein. It all comes together with some beans, avocado, and a little cheese. Watch the video to learn how to make this easy... Read More

Little People, Big World's Audrey Roloff Just Gave Birth to Her First Child

It's a girl! Read More

Mel Brooks: ‘Blazing Saddles’ Would Never Be Made in Today’s ‘Stupidly Politically Correct’ Culture

“Blazing Saddles” may be a groundbreaking comedy, but director Mel Brooks doesn’t think Hollywood would make the iconic Western parody in this current “stupidly politically correct” climate. The... Read More

Box Office: 'Kingsman: The Golden Circle' Unseats 'It' as 'Lego Ninjago' Disappoints

Kingsman: The Golden Circle is the new ruler of the box office. The sequel from Fox is expected to earn $39 million this weekend from 4,003 locations. That’s slightly below where tracking had... Read More

Bradley Cooper-Lady Gaga’s ‘Star Is Born’ Moves to May 2018

Warner Bros.’ “A Star Is Born” remake starring Stefani Germanotta (Lady Gaga) and Bradley Cooper, who is also directing, is moving up its release to May 18, 2018. The pic was originally set to open... Read More

White House officials defend Trump, say athletes 'can do free speech on their own time'

Treasury Secretary Steve Mnuchin defended Trump’s call for NFL players who kneel during the national anthem to be suspended or fired. “It’s not about free speech,” Mnucin said Sunday. “They can do... Read More

In wake of U.N. speech, Kim calls Trump a ‘dotard.’ Trump fires back at ‘madman.’

President Trump and North Korean leader Kim Jong Un have unleashed personal attacks on one another after the U.S. commander in chief’s speech at the United Nations. “Kim Jong Un of North Korea,... Read More

As Russia probe turns to fake Facebook ads, Trump follows with a tweet

President Trump continued his efforts to belittle accusations of Russian meddling in the 2016 election on Friday, turning to the latest set of charges, involving targeted political ads placed on... Read More

Reluctant champion: How Nadia Murad has become the international face of Yazidi suffering – and resilience

Weeks earlier, Nadia Murad had been ripped from her village by Islamic State (ISIS) fighters who murdered her family and took her captive. Along with other young Yazidi women, she was transported... Read More

Readers write: The work of downsizing, evidence of climate change, hopeful coverage on famine

Regarding the Aug. 21 Monitor Daily story “Home prices, and a thought shift, give ‘small living’ a boost”: Interesting concept. My friend has done it, downsizing and living in a tiny apartment.... Read More

Time for the world to step up on Rohingya issue, Aung San Suu Kyi’s astounding hypocrisy, Irma’s destruction in Britain’s Caribbean islands, The US should stop saber rattling, On the Nadal-Federer comeback

“It is high time the world made an all-out effort to stop the ongoing pogrom against Myanmar’s minority Rohingya...,” writes Mohammad Amjad Hossain. “The pogrom resembles those crimes perpetrated... Read More