Bank of America downgraded Rio Tinto and BHP Group from Buy to Neutral ahead of the weekend, removing its positive stance on two of the ASX’s largest mining stocks. Analysts led by Jason Fairclough kept price targets unchanged at A$69 per share for BHP and 9,300 pence for Rio Tinto, but said the risk-reward balance no longer justifies a bullish view.
Both stocks are now trading near the top of the historical price-to-net-present-value range that large-cap diversified miners typically occupy through commodity cycles. The team described the call as “very much a top-down call rather than a call on stock specifics”, signalling concerns about the broader macro environment rather than operational issues at either company.
Why does it matter?
The downgrade reflects growing macro headwinds facing ASX resources stocks, particularly those with heavy exposure to Chinese demand.
China accounts for roughly 50% of demand for most metals and mined products, making the country’s credit conditions a critical driver of commodity prices and mining sector sentiment.
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Bank of America flagged a negative turn in China’s credit impulse as one of the key reasons behind the rating change, alongside rising macro risks tied to the Middle East conflict.
When credit conditions tighten in China, infrastructure spending and industrial activity can slow, reducing demand for iron ore, copper, and other bulk commodities that underpin earnings at diversified miners.
For retail investors, the move suggests that sector tailwinds may be moderating after a strong run. While the analysts stopped short of a bearish call, the shift to Neutral indicates that upside from current levels may be limited unless valuations compress or fundamentals improve materially.
Context: valuations and earnings momentum
The earnings upgrade cycle for the broader mining sector began in mid-2025 and has now matured, according to Bank of America. While earnings revisions remain positive, the analysts said the “easy” gains in this cycle have already been made. Typical upgrade cycles in mining last two to three years, and the current run is approaching that window.
Valuations have followed earnings higher. Both BHP and Rio Tinto now sit near historical peaks on a price-to-net-present-value basis, leaving less room for multiple expansion even if commodity prices hold steady. The analysts also flagged growing pressure on costs, which can erode margins if commodity prices plateau or decline. Rising labour costs, energy expenses, and input inflation have been recurring themes across ASX resources updates over the past year.
Diversified miners tend to trade at higher multiples during periods of rising earnings expectations and strong commodity demand, then de-rate when the cycle matures or macro risks increase. Bank of America’s shift to Neutral suggests the risk-reward has moved closer to balanced after a period where the outlook favoured buyers.
What comes to watch
Markets will be watching for signals from China’s policy settings, particularly any changes in credit availability or stimulus measures aimed at infrastructure spending. Chinese data on steel production, property starts, and credit growth often provide early clues about demand trends for iron ore and other bulk commodities.
If you’re building a diversified portfolio, our guide to the best ASX stocks covers a range of sectors and strategies beyond resources.
