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.
The outcome of sanctions imposed by the US Treasury against Rusal will drive global aluminium prices in the coming months, Fitch Ratings and CRU say. Protracted aluminium supply interruptions are likely to boost prices to USD3,000 per tonne from around USD2,220/t earlier this year.
Rusal will be impacted by the sanctions as the number of counterparties that will be able and willing to provide procurement, marketing, funding or treasury services to the group is likely to be significantly reduced. Related: Fitch Withdraws EN+ Group PLC's Ratings
A successful bid by ArcelorMittal (AM, BB+/Positive) for Essar Steel would give exposure to the Indian steel market, which is likely to be the fastest-growing in the world over the next two decades, say Fitch Ratings and CRU.
The rating is supported by a combination of improved profitability, further cost reduction and efficiency efforts, and debt repayments, which results in Fitch's forecasted debt/operating EBITDAR remaining below 3.5x through the ratings horizon.
The US government's plan to impose tariffs on steel and aluminum imports could heighten risks to global growth should it result in retaliatory measures that lead to broader trade disruption and higher consumer goods prices.
An upgrade of ArcelorMittal's (AM; BB+/Positive) rating could become less likely if the company's bid for insolvent Indian steel producer Essar Steel proceeds to an acquisition that leads to a rise in funds from operations adjusted leverage, even though a transaction would moderately enhance AM's operating profile through it gaining a foothold in the growing Indian market.
Companies are seeing more sustainable free cash flow generation and healthier balance sheets following a rough 2017 that was seen by many major miners as the nadir for investment spending. However, commodity prices may remain short of incentive levels for greenfield investment with the notable exceptions of zinc and metallurgical coal.
The Chinese authorities' winter curbs on steel production in the north-east and broader efforts to contain carbon emissions will temporarily lower steelmakers' sales volumes, but the impact on profits will be partially offset by higher prices and margins, says Fitch Ratings in association with CRU.
"The outlook for the sector in 2018 is positive. Prices have increased strongly for themajority of commodities over the past year and we now see a generally better demand/supply balance." - Peter Archbold, Head of Natural Resources and Commodities
Fitch expects the overall market dynamics in China’s steel sector to be stable in 2018. Steelmakers' profitability will be supported by limited supply and a decrease in raw material prices. In India, we expect demand growth to be mostly driven by an increase in government infrastructure projects.
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.
Fitch Ratings has upgraded the Issuer Default Rating (IDR) for Teck Resources Limited (Teck) to 'BB+' from 'BB' along with Teck's unguaranteed debt. Fitch also affirmed the 'BB+' rating of the guaranteed debt and facilities.
Latin American miners are highly exposed to China with expansion in China's housing sector expected to decline as the economy shifts to consumer-led growth. Iron ore prices are expected to remain low, driven largely by oversupply in the market. Copper and zinc have more pricing support over the next 12 months.
Chinese stimulus measures have supported fixed-asset investment, which in turn has improved prices for most commodities since the start of 2016. For 2017 we expect fixed-asset investment in China to stabilise and forecast fixed investment growth of 4.4% in the same year (2016: 5.7%) which means that prices are unlikely to return to the 4Q15 levels.
China's success in making significant reductions in coal and steel capacity last year was based on picking "low-hanging fruit" by closing mines and factories that were already idle and cutting working days. It will be harder to hit the capacity reduction targets set for 2017.
The new Mining Charter announced last week will require mining companies to raise their black economic empowerment (BEE) ownership slightly, to 30% from 26%, pay 1% of turnover to BEE owners (before any dividends) and meet tough targets for procurement from local and black-owned companies.
Improved outlook for Chinese demand, supply rationalization, cost-cutting measures and balance sheet repair have improved asset and equity valuations in the North American metals and mining sector over the course of 2016.
The power tariff adjustments are among other policies designed to help the country's industrial sectors cut costs by CNY120 billion, which include cuts to railway fares, highway tolls as well as power and natural gas transmission costs.