Bank of America on Friday downgraded both and Group to Neutral from Buy, citing stretched valuations, a negative turn in China’s credit impulse, and growing macro risks tied to the Middle East conflict.

“To be clear, this is very much a top-down call rather than a call on stock specifics,” analysts led by Jason Fairclough said about both stocks.

The team kept price targets unchanged — A$69 per share for BHP and 9,300 pence for Rio Tinto — but said the risk-reward no longer justifies a bullish stance. Both stocks are trading near the top of the historical price-to-net-present-value (P/NPV) range that large-cap diversified miners typically occupy through the cycle.

The earnings upgrade cycle for the broader mining sector, which began in mid-2025, has also matured, the analysts said.

While earnings revisions remain positive, they said the “easy” gains in this cycle have already been made, noting that typical upgrade cycles last two to three years. “We also consider growing pressure on costs, from here,” the analysts added.

China is the more pressing concern. The country accounts for roughly 50% of demand for most metals and mined products, and closer to 70% of the seaborne market.

China’s credit impulse, a measure of new credit as a share of GDP, has turned negative year-on-year, and historic correlations suggest mining equity performance follows this indicator with a lag of six to eight months. Analysts also noted that iron ore prices are somewhat elevated relative to both their historical levels and seasonal norms.

On the side, BofA flagged the risk of a demand shock driven by the escalating Middle East conflict, pointing to four instances in the past 25 years — the dot-com bust, the global financial crisis, the 2015 China hard-landing scare, and Covid — where such shocks drove prices to marginal cost.

While not a base-case scenario, the analysts said the risk tails “are getting fatter for unexpected, possibly negative outcomes.”
Source: Investing.com