The rating outlook for the global mining sector in 2020 remains stable, as slower demand for some commodities is counterbalanced by supply restrictions for others, Fitch Ratings says.
A weakened macroeconomic environment has caused demand and prices for some commodities to fall, which the ratings agency expects to continue over the medium term, particularly aluminium and copper, but also thermal coal.
In contrast, the iron-ore market is said to remain in deficit for now amid supply restrictions in Brazil, while nickel prices have soared on Indonesia's plan to ban nickel ore exports from 2020. Increased demand for gold, meanwhile, reflects waning risk appetite in the capital markets, Fitch says.
Most mining company's ratings have ‘stable outlooks’ and are comfortably positioned within their rating sensitivities. This follows efforts to move to more conservative balance sheets in the aftermath of the downturn of 2015 and 2016.
Fitch has upgraded many companies, linked to a prudent step change in their financial policies. In 2020, there is scope for lower-rated companies to improve their credit profiles through debt reduction and/or improving operational performance, the agency notes.
The financial profiles of individual (pure-play) copper and aluminium companies in the 'B' or 'BB' rating categories are weak. While Fitch says that it no longer forecast significant price declines for those commodities, it expects miners of these metals to take action - including deferral of some growth capital expenditure and payment of lower dividends – in order to retain neutral or positive free cash flow.
Further, low investment-grade companies are mostly single-commodity producers with strong business and conservative financial profiles, representing a large proportion of the portfolio, where 16 out of 43 companies are rated BBB-.
Miners with diversified commodity portfolios or very strong market positions achieve higher ratings, up to 'A' for the likes of BHP Group and Rio Tinto.
Lower-rated companies are mostly single-commodity producers with smaller scale, high leverage, weaker cost position or operations in a country with a challenging operating environment.