LONDON MARKETS: FTSE 100 Eases From Record; BHP Hurt After Downgrade

By Carla Mozee, MarketWatch

Citi, S&P lower views on iron-ore sector

LONDON (MarketWatch) -- U.K. stocks on Monday fell for the first day in three sessions, as mining stocks struggled following downbeat outlooks for the iron-ore sector.

The FTSE 100 finished 0.4% lower at 7,064.30. The blue-chips index on Friday closed up 1.1% at 7,089.77 (http://www.marketwatch.com/story/ftse-100-at-record-high-as-shire-property-stocks-gain-2015-04-10), a record close.

The basic materials group on Monday fell more than 1% as Citi cut its stance on the iron-ore sector to neutral from bullish, in line with major forecast revisions by Citi's commodity team. Citi said iron-ore prices are likely to drop to $36 a metric ton and average $45 a metric ton this year, with pressure coming in part from slowing demand from China as well as an increase in supply.

Shares of BHP Billiton and Rio Tinto , the largest producers of iron ore, fell 3.3% and 0.8%, respectively.

Separately, Standard & Poor's cut its iron-ore price forecasts for 2015, 2016 and 2017, and placed several iron-ore producers on watch for possible credit-ratings downgrades. "In our view, lower iron ore prices may not only weaken producers' operating cash flows and financial leverage, but may also affect the long-term resilience of some companies' business risk profiles, given the higher-than-anticipated earnings volatility due to iron-ore-price swings," it said.

Citi dropped its rating on BHP to neutral from buy and moved it off its European focus list. "One concern with BHP is cash-flow generation where further cuts to capex will be required to prevent debt rising further, particularly after the reduction in cash-flow generation after the S32 demerger," said the analysts.

BHP shareholders on May 6 will vote on the proposed spinoff of South 32, which will focus on production of aluminum, coal, nickel and other assets.

Citi also cut its rating on Rio Tinto, to neutral from buy, and downgraded Anglo American PLC to sell from neutral. Anglo shares fell 2.3%.

Pearson PLC shares fell 1.9% after Jefferies downgraded the publishing firm to underperform from buy, as "[r]ecent performance has taken the stock to a lofty multiple."

Monday's advancers included precious-metals miner Fresnillo PLC and energy-engineering company Weir Group PLC , which gained 0.9% and 0.6%, respectively. Banking stocks also gained, led by a 1.2% rise for Royal Bank of Scotland PLC .

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