We anticipated a margin squeeze this year, but the weakness in domestic demand and the impact on sales volume were greater than expected. Further margin erosion and persistent weakness in demand could have rating implications as the rating headroom for these companies in terms of debt-to-EBITDA leverage is limited.
We expect steel production to decline in 2H19 due to three factors - a slowdown in housing construction, production restrictions led by environmental measures and market-driven production cuts on shrinking steelmaker margins.
Imports of China's seaborne thermal coal will decline, driven by manufacturing industries' relocation away from coastal regions, renewables growth and an increase in domestic coal supplies. New demand in other Asian markets, such as India, could compensate for falling Chinese imports; however, competition among exporters for new markets is likely to be intense. We expect Indonesian miners to be most affected given their exposure to China.
The business profile of AGA is in line with a low 'BBB' rating category, supported by its leading position as a gold producer and global geographic diversification. The operational profile also takes into consideration that the business derives near 80% of its gold output from more challenging operating environments, including Tanzania, Guinea, Ghana and Argentina.
Consistently high carbon dioxide (carbon, CO2) prices in the EU put a strain on the bloc's steelmakers' profitability, Fitch Ratings and CRU say. The proposed carbon border tariff adjustment may alleviate some pressure from EU producers, although non-EU producers operating electric arc furnaces may get a competitive advantage.
Lower debt balances and manageable capex will minimize credit implications arising from a projected yoy decline in copper prices. We expect credit profiles, particularly for issuers with competitive cost profiles, to remain stable over the near term even with a more subdued price outlook. Copper prices increased approximately 50% from June 2016 to June 2018 before declining, enabling some producers to meaningfully reduce debt.
The delay and higher than expected cost of Rio Tinto's Oyu Tolgoi mine project highlights the risks associated with block caving, an underground hard rock mining method, which could have implications for copper supply and pricing, says Fitch Ratings. However, CRU expects block caves to account for more than a fifth of the growth in potential copper supply by 2025 and to represent around 10% of the unadjusted copper mine supply by 2025.
The rating actions follows the company's announcement that it has abandoned its plans to separate the group into two standalone, publicly traded companies and to transfer its European steel operations into a joint venture with Tata Steel Limited, amid the European Commission's expected decision to block this transaction.
Stronger cash flow generation, in the context of a favourable commodity price environment and ongoing business transformation, allowed a reduction in adjusted gross debt to USD10.6 billion at end-2018 from USD13.4 billion at end-2017.
Fitch Ratings and CRU Group are delighted to invite you to a live webcast on the outlook for copper and its impact on credit ratings. The discussion will focus on the conclusions of April’s Global Copper Conference in Santiago de Chile, and on the recent rating actions Fitch has taken in the sector.
The sharp rise in iron ore prices to over $90/dry metric ton (dmt) from under $75/dmt since January, due to supply disruptions in Brazil and Australia, may be more structural than initially anticipated.
Robust cash flow, enhanced by higher iron ore prices and a strong balance sheet, should enable Vale to absorb substantial potential fines and reparation costs without breaching Fitch's negative financial triggers. However, identifying and quantifying all unknown contingent liabilities remains difficult due to continued elevated legal and regulatory risks.
The RWP reflects a review of Fitch's internal assessment of the creditworthiness of the Zhaoyuan municipality, which was prompted by a revision in the criteria that govern the ratings of international local and regional governments. The linkage between Zhaojin Group and the Zhaoyuan municipality remains unchanged.
If the independent review were to conclude that some employees at the charity (an independent organisation) had misappropriated or diverted part of the donations, then this is to a large extent captured by the operating environment constraint that is already factored into the rating.
Growing Chinese thermal coal supply is likely to lead to further tightening of import controls by the government, putting pressure on seaborne coal prices and adding order uncertainties for exporters. Miners from Australian and Indonesia are the most exposed, but the credit impact is muted thanks to sufficient rating headroom as we have already incorporated a downward pricing trend in our rating assumptions.
The proposed notes are rated at the same level as the IDR as they will be unconditionally, jointly and severally guaranteed by MIN and its subsidiaries, which represent more than 95% of group consolidated total assets and net income.
Increased joint venture (JV) agreements in the gold sector will provide companies opportunities to capture synergies and optimize assets. As availability of high-quality assets declines, co-development of properties is more cost efficient, requires less capital, and is therefore positive for credit profiles.
Rusal successfully managed its operations under the US sanctions with limited impact. Due to several extensions granted to the company's grace period by the Office of Foreign Assets Control, Rusal did not bear the full impact of the sanctions.
Fitch Ratings and CRU Group have entered into a strategic agreement that incorporates CRU’s expertise and leading market analysis in Metals and Mining into Fitch’s independent and insightful research and credit analytics. Through this partnership Fitch’s credit analysis and research reports will be broader, more frequent and more insightful than contemporary market offerings.