Market Report: BHP Billiton and Rio Tinto damaged by global iron ore misery

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Things are about to get a whole lot worse for BHP Billiton and Rio Tinto if Liberum Capital’s analysts have fine-tuned their crystal ball-gazing skills.

They argue Chinese iron ore imports, which have remained resilient even amid fears about the country’s economic slowdown, could be about to turn negative as the steel industry grapples with “unsustainable margins”.

They reckon the price of iron ore will average just $40 a tonne next year as a result.

To put that into perspective, iron ore futures have just fallen below $50 a tonne for the first time since July.

If this happens, Liberum’s scribblers fear even drastic changes to oil, aluminium or copper businesses might not be enough to protect profits.

No surprise then that the broker slashed its ratings for the Footsie’s big iron ore miners to sell, dragging down BHP Billiton by 52p, or 4.7%, to 1045p, and Rio Tinto by 80p to 2335p.

Miners dug in their heels and sent blue-chip stocks into reverse, with the FTSE 100 slipping 66.46 points to 6371.34.

There was no interest rate hike across the Atlantic but US policymakers hinted more strongly than expected that it could come in December.

Knee-and-hip-replacement specialist Smith & Nephew was among the casualties as it fell 56p, or 4.9%, to 1094p when third-quarter sales missed analyst estimates.

It unveiled the $275 million (£180 million) takeover of Blue Belt Holdings, which specialises in knee-replacement surgery robotics.

Diageo trickled 19p higher to 1888.5p after Credit Suisse upgraded the maker of Johnnie Walker from neutral to outperform.

“We believe Diageo’s increased focus on volume growth can help draw a line under two years of earnings downgrades,” the broker said. 

Jude Law.jpg

Smooth result: Jude Law advertises Johnnie Walker Blue Label, made by Diageo

Playtech shares were on a roll, 56.5p better at 849p, after a strong third quarter from the gambling software and online trading company. Overall revenues rose 47% to €170.9 million (£123.2 million), while underlying growth was an impressive 17%.

Shares in Falkland Oil & Gas tanked to 14.33p, losing 5.92p, or 29%, after the explorer revealed a well off the islands in the South Atlantic failed to find commercial oil. 

Mirabaud Securities said: “This result is a hammer blow for Falkland Oil, which is seeing its coffers running low following costly overruns.”

Other drillers of the Falklands were hit by the news. FTSE 250 group Premier Oil fell 4.29p to 68.61p, Rockhopper Exploration slid 1.5p to 40p, while Borders & Southern plunged 0.81p, or 25%, to 2.44p.

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October 29, 2015 |
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