Downturn will mark unprecedented shift for mining ind: Moody's

The slowdown in the mining sector, particularly in China -- the world's biggest metal consumer -- will lead to an "unprecedented shift in the industry, Moody's Investor Service said today.
The downturn and subdued prices have weakened the credit conditions of the mining companies, the ratings agency said in a statement.
"Moody's believes that this downturn will mark an unprecedented shift for 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," it added.
This review reflects the belief that deteriorating industry fundamentals require a recalibration of the global mining portfolio rated by Moody's. Although all issuers in these sectors have been adversely affected by declining prices, severity varies substantially by issuer, the agency said.

"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 and thermal coal markets is weakening demand for these commodities and driving prices to multi-year lows," Moody's Senior Analyst Brian Grieser said.
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, he added.

As part of an ongoing assessment of mining companies, Moody's sharply reduced its price sensitivity assumptions on December 8, 2015. Since then, credit conditions in the mining industry have weakened further, with prices continuing to decline.

The likelihood has increased that prices for base metals, precious metals, iron ore and metallurgical and thermal coal will approach levels closer to Moody's stressed sensitivity scenario.
In addition, the strong US dollar is a further factor contributing to weakening demand and driving prices lower since most metals are traded in dollars, Moody's said.