Big mining downgrade cycle begins

Right on cue, the sell side downgrades to big miners have begun. Citi is out today with profit and price outlook cuts to FMG while Macquarie has cut WHC. Goldman is now forecasting an ongoing profit downgrade cycle:

The end of the upgrade cycle. BHP, RIO and FMG have benefitted from a considerable earnings upgrade cycle (EBITDA +111% in past 12 months). Consensus iron ore price forecasts for 2017 now sit at US$66per tonne just 5% above spot. We believe an earnings downgrade cycle looms.

Iron ore spot is now $64.40 and falling fast. My view is that it will be $50 in a few months and at new lows before year-end. The downgrade cycle is going to to be epic. First for firms:

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.