JP Morgan has broken ranks to significantly raise iron ore price forecasts, with Rio Tinto its preferred large cap in the sector.

In Big end iron blunder? yesterday I presented the contrarian case for iron ore prices and the potential for meaningful upgrades should prices merely remain where they are.

Well it didn’t take long for the first upgrade to roll in. JP Morgan has been one of the first to break rank, raising its first-quarter and full-year forecasts for the 2013 calendar year significantly, following the recent strength in prices. Despite believing the current Chinese restocking phase will slow down considerably in early February, coinciding with the Chinese New Year, it upped its first-quarter iron ore forecast to $US145/t from $US117.50/t.

On top of that, it upgraded its full-year 2013 estimates too, and believes iron ore prices will average $US130/t from $US110/t.

Consequently, this has resulted in an upward revision for the major iron ore players. While the broker remains neutral on both Fortescue Metals Group and BHP Billiton, it has lifted its price targets to $4.75 (16 per cent) for Fortescue and $40.00 (2.5 per cent) for BHP.

Interestingly, the broker is more bullish on Rio Tinto and rates it as its preferred large cap pick in the sector. It upgraded the giant to overweight and lifted its target price to $79.00, which is approximately 20 per cent above the current price.

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