The big miners are heading for a tricky year ahead according to JP Morgan, with cost pressures rising and uncertainty over prices.
Rio Tinto PLC (LSE:RIO) will bring the sector back into focus next week with a fourth-quarter production update and though JPM predicts more bumper cash payouts it expects a more cautious tone overall.
Lower iron prices will take the wind out of the sails of bulk miners such as Rio and BHP PLC, reckons the US bank, with second-half earnings as much as 15% down on the first six months of 2021.
Cost pressures (power, raw materials, labour, freight) are also a concern. Anglo American has already flagged inflation of 10% in 2021 and 4% in 2022 and comments by the others will be a key area of sensitivity for investors going into reporting season, JPM believes.
Alongside Rio, JPM sees Glencore as having the biggest scope to hand out cash which reflects bumper coal earnings after the recent record high for the fuel and steel component.
Anglo American and Antofagasta are the ones under most cost pressure, suggests JPM, but the sector generally will be hit if any others use the production updates to warn on costs and margins.
Rio shares were flat at 5,455p while Glencore rose 1.2% to 406.2p.