Goldman Sachs cuts global growth outlook but remains bullish on BHP, Rio Tinto and South32

Goldman Sachs has downgraded its global economic growth and commodity price outlook following the wave of tariff announcements, with the sharpest cuts aimed at the US and European Union.

Despite the analysts expecting additional policy easing in China, they caution that any boost to construction-related stimulus — and thus to steel and iron ore demand — remains uncertain and likely limited.

In a note released this week, Goldman Sachs warned that the tariffs’ impact on commodity demand is murky but likely negative, predicting a six-month period of inventory destocking and reduced metal consumption. This could pressure commodity prices, particularly in steel and bulk materials like iron ore and coal.

The investment bank's recent 'Metals & Mining' trip to China reiterated such concerns, with Chinese steel mills and manufacturers voicing unease over export demand amid looming US tariffs.

Drawing from past commodity downturns — 2008, 2015, 2018, and 2020 — Goldman Sachs analysts noted that metals with tight fundamentals and companies boasting strong free cash flow and balance sheets tend to weather the storm.

This time, they favor base metals like copper and aluminum over bulk commodities, highlighting major diversified miners like BHP, Rio Tinto and South32, as well as pure-play exposures like Bluescope Steel and Sandfire Resources.

China Trip Highlights Five Key Themes

The investment bank's China trip and broader Asia investor meetings highlight five dominant topics in the global mining and commodities space.

• Chinese Steel Production Cuts: Six steel mills visited in Tangshan expect modest cuts, likely in the second half of 2025, offering little near-term relief for iron ore.

• Copper and Aluminum Outlook: US tariffs could spark inventory shifts to the US and Comex, clouding price forecasts.

• Coal’s Trajectory: After a price de-rate in metallurgical and thermal coal, focus is on Australian and Chinese supply and cost curve support.

• Mining M&A Buzz: Interest centers on large-cap miner mergers and asset deals, with Rio Tinto’s dual-listed structure under scrutiny.

• Stock Preferences: Investors lean toward companies with solid FCF and growth catalysts.

Commodity Price Cuts and Earnings Downgrades

Goldman Sachs downgraded its coal (metallurgical and thermal) and alumina price forecasts post-trip, aligning with its commodity team’s recent iron ore price reductions. Copper and aluminum forecasts were tweaked, while zinc, lead, and precious metals also saw cuts.

Revised commodity price outlook points to year-on-year declines for most metals for 2024-25 | Source: Goldman Sachs

These changes have resulted in sharp downgrades to target prices and 2025 and 2026 earnings expectations across most of their coverage, with coal companies bearing the brunt."

Australian miners faced additional headwinds, with cyclones in the Pilbara and Bowen Basin hammering March quarter iron ore and coal exports harder than in prior years.

Stock Picks and Pans

Despite the earnings downgrades, Goldman Sachs remains bullish on majors BHP, Rio Tinto and South32 as well as Bluescope Steel, citing resilient free cash flow and robust balance sheets.

The analysts also highlighted pure plays like Champion Iron and Iluka Resources, both of which have Buy ratings for their attractive valuations.

• Sandfire Resources (ASX: SFR): Upgraded to Buy from Neutral, with a $10.20 target, buoyed by a positive long-term copper view, strong FCF (over 10% yield 2025-2027), and deleveraging to net cash by FY26.

• Sims Limited (ASX: SGM): Downgraded to Sell from Neutral in a prior report, hit by low US scrap volumes and high steel inventories.

• Mineral Resources (ASX: MIN): Downgraded to Sell from Neutral, with a $18.00 target, weighed by high debt, low FCF, and delayed Ashburton ramp-up amid lower iron ore forecasts.

• Fortescue Metals (ASX: FMG): Upgraded to Neutral from Sell with a $15.30 target, the stock trades at 0.8x NAV with cost levers available, though FCF is expected to shrink in 2025 due to higher costs and capex commitments.

• Coronado Global Resources (ASX: CRN): Downgraded to Neutral from Buy with $0.35 target price. The company faces a potential $200 million FCF deficit in 2025 due to lower coal prices and high costs.

• Whitehaven Coal (ASX: WHC): Downgraded to Neutral from Buy, with a $5.90 target price, as analysts forecast below-consensus EBITDA and looming negative FCF.

Rio Tinto vs. BHP

A recent analysis of the $50-60 billion project pipelines of Rio Tinto and BHP reveals a modest advantage for Rio. Goldman Sachs projects Rio’s copper-equivalent production to rise 20% by 2030, far outstripping BHP’s stagnant growth. This edge could lift Rio’s EBITDA 15% above BHP’s, while delivering stronger free cash flow yields of 7-8% compared to BHP’s roughly 4%, alongside better capital returns.

The analysts maintain Buy ratings on both, setting a $45.1 price target for BHP and $141.9 for Rio Tinto.

The bottom line

As US "reciprocal" tariffs and an unsteady global macro environment loom into the second quarter, the risk/reward outlook for miners remains tepid at best. Goldman Sachs favors precious and base metals over steel and bulks, though it maintains a cautious stance across the broader materials sector.