Fortescue Metals Group's development of the Eliwana iron ore mine in Australia's north-west Pilbara region is likely to support the company's profit margins, enhance its competitiveness and help it to retain market share over the longer term, say Fitch Ratings and CRU.
The structure of EU steel supply has changed over the last few years, with the region becoming a net importer of finished steel, Fitch Ratings and CRU say. This change benefits EU steelmakers' margins as they can now sell everything they produce in the regional market. However, there is a possibility of new entrants increasing domestic supply, which could undermine the status quo and impair steel mills' profitability.
Changes to Fitch Ratings' metals and mining price assumptions from the last update in May are comparatively small in number and level and do not reflect a change in our view of commodity markets. Positive underlying supply/demand fundamentals continue in most mined commodity markets, although near-term risk to growth has risen due to trade tensions, which is reflected in increased market price volatility.
Strong cost inflation in the global metallurgical coal sector suggests that miners may focus on cost controls as prices decline from their current high levels over the next 18 months, say Fitch Ratings and CRU.
Import tariffs have contributed to positive supply/demand and pricing dynamics for the US steel industry due to less competition from cheaper imports, according to Fitch Ratings and CRU Group. US steelmakers continue to experience strong revenue and cash flow growth driven by higher utilization rates and selling prices.
US tariffs on steel imports have not yet affected the credit ratings of EMEA producers because most steel companies in the region have relatively small direct exports to the US. Only about 3% of steel produced in EMEA goes to the US.
The outlook for the mining sector has become more clouded in recent months due to trade tensions between the US and China, Fitch Ratings says. Prices for several commodities, including copper, nickel and zinc, fell sharply in July due to investor concerns about global growth.
China's stricter environmental regulations and structural changes in its steelmaking industry boosts ongoing demand for high-quality iron ore and coking coal and widens premiums and discounts for the products' various grades relative to benchmarks, say Fitch Ratings and CRU.
Wider hybrid and electric vehicle (EV) adoption should support demand for cobalt and lithium, Fitch Ratings and CRU say. However, CRU expects demand for cobalt to be lower than many market participants' expectations from 2025 onwards due to the faster adoption of lower cobalt-intensive types of batteries.
Corporate credit implications from the US's expansion of steel and aluminum tariffs on imports from the EU, Canada, and Mexico will be mixed. Retaliatory actions could escalate trade tensions but the situation would need to deteriorate severely to have major ramifications for world GDP.
Tata Steel Limited's (TSL, BB/Rating Watch Evolving) acquisition of a controlling stake in Bhushan Steel Limited is likely to raise TSL's leverage over the next two to three years, which will offset the benefits to its credit profile from the resultant increase in market share in India as well as reduced exposure to structural weaknesses in Europe.
The long-term outlook for the Asian thermal coal prices is improving, amid rising regional demand and falling mining investment, which partly reflects tighter environmental policies at banks. Mining companies in the region are likely to face less margin pressure than under our previous price assumptions, which, along with lower capex, could support deleveraging.
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.
Nick Morgan, CEO of CRU Group, and Richard Hunter, Global Head of Corporates at Fitch Ratings, discuss the new partnership between Fitch Ratings and CRU Group, offering insight into Fitch's newly expanded Metals and Mining analytics and research.