Morgan Stanley downgraded Albemarle Corp. and Sociedad Quimica y Minera de Chile SA, or SQM, to "underweight" from "equal weight" Feb. 26, while unveiling a bleak outlook for lithium.
The analysts expect lithium carbonate prices to drop 45% from US$13,375/tonne to US$7,332/t by 2021.
While lithium's role as a key raw material for electric vehicle batteries drove prices to more than double over the past two years, Morgan Stanley does not expect the growth of the electric vehicle industry to be enough to offset increasing lithium supply from Chile, where new projects and expansions could add about 500,000 tonnes of annual global lithium supply by 2025.
Albemarle and SQM are expected to add a combined 200,000 tonnes of lithium to the annual global supply by 2025, given expansion plans in Chile.
The bank forecast 2018 as the last year of global lithium deficit, with the subsequent years to face a "significant" lithium surplus. Morgan Stanley estimated that battery electric cars would need to make up 31% of global sales in 2025, compared to less than 2% currently, to clear the market.
Morgan Stanley cut its target price for Albemarle's stock to US$85 per share from US$100 per share but raised SQM's target price to US$44 per share from US$32.50 per share, with analyst Javier Martinez de Olcoz Cerdan referring to the company as the world's best-quality lithium player.
S&P Global Ratings revised its outlook on Petra Diamonds Ltd. to negative from stable and affirmed the company's B long-term issuer credit rating.
In a Feb. 26 report, S&P Global Ratings said the new outlook reflects the negative impact that the strengthening South African rand is expected to have on the miner's 2018 EBITDA, which Petra Diamonds had already estimated at 5% below consensus EBITDA forecasts. The rating agency expects Petra Diamonds' free cash flow to remain negative in its current fiscal year amid lower anticipated EBITDA, though the company is expected to be cash flow positive from fiscal 2019 onward.
Vale SA was upgraded Feb. 28 by Octo Finances to "hold" from "sell," after the mining major released improved financial results for 2017.
Apart from increased net income of US$5.51 billion for the year, Vale's free cash flow rose to US$8.60 billion, the highest level since 2011, bolstered by reduced CapEx of US$3.45 billion compared to US$5.48 billion in 2016. Net debt also plunged to US$18.14 billion at end-2017 from US$25.04 billion at end-2016.
Octo Finances further highlighted Vale's improved credit quality on the back of higher prices, asset disposals and cost cuts.
Agnico Eagle Mines Ltd. also saw an upgrade, with TD Securities lifting its rating on the company to "buy" from "hold" Feb. 28. The target price for Agnico's stock was reduced, however, to C$53 per share from C$55 per share.
Analyst Greg Barnes sees 2018 as the pivot to Agnico's growth and free cash flow. He said the company's 2018 gold output target of 1.5 million ounces is a low point for annual production as Agnico's Meliadine and Amaruq gold projects in Nunavut, Canada, are expected to start producing in the second half of 2019.
Moody's raised the senior unsecured ratings of Barrick Gold Corp. to Baa2 from Baa3, with a stable outlook.
"The upgrade reflects Barrick's aggressive deleveraging with the expectation that debt will be reduced further, to about US$5 billion by the end of 2018, so that adjusted leverage will remain well below 2x even as production declines," Jamie Koutsoukis, a Moody's vice president and senior analyst, wrote in a March 1 note.
The stable outlook is based on the expectation that the gold major will continue to generate free cash flow, enabling further asset investments and debt reduction.
Also on March 1, Seaport Global initiated coverage of Teck Resources Ltd., tagging the company with a "neutral" rating.
According to the Seaport Global team, Teck's potential upside does not sufficiently offset the downside for a "buy" rating. The analysts see the company's exposure to metallurgical coal and copper prices as a possible weakness, such that a correction in either or both of the commodities' prices could weigh down Teck's shares.
Still, Teck is expected to remain free cash flow positive over 2018, as prices for its major commodities are forecast to remain elevated through much of the year.
S&P Global Ratings on March 1 improved its outlook on mining giant Anglo American Plc to positive from stable while affirming the company's long- and short-term issuer credit ratings at BBB-/A-3.
Anglo American earned the stable outlook with its strong 2017 results and its new financial policy, which is expected to help build the company's resilience to future downturns in the industry. Relatively low CapEx and modest dividends in 2017 allowed the miner to cut net debt by 47% to US$4.5 billion by the end of the year.
The rating agency said further cuts in net debt could be achieved in 2018 based on price assumptions and Anglo American's guidance for CapEx and dividends for the year. S&P Global Ratings could raise the company's rating in the coming 12 to 18 months if it delivers on projections and further improves its asset base.
U.S. Steel Corp. was downgraded March 2 by Bank of America Merrill Lynch to "neutral" from "buy" amid fears of a global trade war sparked by looming U.S. tariffs on steel and aluminum.
During a March 1 meeting with executives from major U.S. aluminum and steel processors, President Donald Trump said the U.S. will tax imports of steel at 25% and aluminum imports at 10%, though he did not say whether the new tariffs would target or exempt imports from any specific countries.
Analyst Timna Tanners warned that U.S. Steel could be vulnerable to potential backlash from the tariffs and the directive will have limited benefits in 2018 due to previous contracts that already locked in lower prices. The analyst also expects price drops for steel in 2019, flagging the potential for challenges to the tariffs, increases in domestic capacity and a slump in demand.
Despite the cut, Bank of America Merrill Lynch raised the target price for U.S. Steel's stock to US$50 per share from US$47 per share.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.