'Sell' recommendations on BHP (ASX:BHP) Group Ltd (LSE:BHP, ASX:BHP) and Rio Tinto PLC (LSE:ASX:RIO) shares have been removed by UBS as it sees the iron ore price stabilizing in the near future.
Both mining giants have been upgraded to a 'neutral' rating, given the bank's expectation that iron ore prices will hold within the $100-130 per tonne range over the next six months.
In a separate note, the bank said it now expects iron ore prices to fall by less than previously thought and costs are seen likely to remain higher for longer. The bank also lifted its long-term iron ore price to US $85/t, compared to US$65/t previously and the US$75/t consensus.
Also upgraded were Vale SA (ADR) (NYSE:VALE), Fortescue Metals Group (ASX:ASX:FMG) and Deterra Royalties, all moved to 'neutral'.
For BHP, the expected stabilisation in pricing is seen as likely to enable the company to provide a competitive dividend, with a yield of around 6%, and moving its primary listing out of the UK has allowed the company to benefit from the ASX premium versus the FTSE.
Rio Tinto, meanwhile, is similarly positioned to provide a reasonable dividend, with an estimated 7% yield.
UBS notes that the company's stock has lagged behind BHP by 5% during 2023 and said it currently prefers Rio over BHP.
Despite the revisions, UBS remains cautious about the medium-term prospects for iron ore, with for both BHP and Rio Tinto the risk and reward perceived to be balanced.