S&P warns if China’s slowdown proves to be severe, it could take the wind out of commodities prices sails. Even with a soft landing, steel and aluminum producers will still weaken.
RENO (MINEWEB) – A key threat to the stable outlook of the mining sectors is a rise in inputs costs,” Standard & Poor’s credit analysts warned in a recent industry report card on Asia-Pacific metals and mining companies.
“A tighter labor supply and likely higher energy prices will pressure the profitability of many commodity producers. Metal producers will also be wrestling with more expensive raw materials,” the analysts advised.”
“For Asia-Pacific steel and aluminum companies, we forecast a negative outlook. Margins in this subsector will struggle with softening demand due to a global slowdown and abundant supply.”
“On the other hand, we expect the credit prospects of producers of copper, high grade minerals sands, seaborne iron ore, and coking coal to remain steady,” the analysts predicted. “Although prices of these commodities have come down, producers still enjoy reasonable margins. In addition we believe prices of these commodities have bottomed out because growing, albeit slower, demand and supply-side constraints will underpin prices at current levels.”
S&P analysts say they believe prices of coking coal, copper and seaborne iron ore likely bottomed in the first quarter of this year. Meanwhile, further industrial actions, delays in production ramp-up and the impact of weather events could disrupt supply.
Nevertheless, S&P believes thermal coal prices could further soften, especially if exports from the U.S. to Asia due to a sluggish domestic market consolidate its momentum.
Meanwhile, S&P warns, “Further bouts of weakness could also materialize for nickel because of the metal’s demand sensitivity to industrial usage and substitution risks.”
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