Oil prices may have rebounded somewhat on Friday as bargain-hunters stepped in after sharp falls earlier in the week, but commodity producers woes continued to mount as Moody’s released a slew of downbeat announcements. In all the firm placed 175 resources companies (120 oil and gas, 55 miners) on review for possible downgrade across a litany of jurisdictions. In the wake of oil’s dramatic plunge in recent weeks, miners’ woes have been somewhat eclipsed, but as Moody’s points out, Investors will be well served to remember that a lot of risks remain. Including companies like Anglo American, Alcoa, Vale, Anglo Gold Ashanti and South 32 Moody’s said the reviews come on the back of the continued weakening of credit conditions in the sector.
“Slowing growth in China, which consumes and produces at least half of base metals, and is a material player in the precious metals, iron ore and metallurgical coal markets is weakening demand for these commodities and driving prices to multi-year lows,” said Carol Cowan, a Moody’s Senior Vice President. She added: “China’s outsized influence on the commodities market, coupled with the need for significant recalibration of supply to bring the industry back into balance indicates that this is not a normal cyclical downturn, but a fundamental shift that will place an unprecedented level of stress on mining companies.”
Going even further, the ratings agency said the current down turn will mark an unprecedented shift in the mining industry. “Whereas previous downturns have been cyclical, the effect of slowing growth in China indicates a fundamental change that will heighten credit risk for mining companies… deteriorating industry fundamentals require a recalibration of the global mining portfolio rated by Moody’s.”
[Source: Portfolio Adviser - Geoff Candy - January 25, 2016]