Asian Miners’ Credit Profile On A Slow Recovery As Demand Recovers

The profitability and credit metrics of Asia-Pacific mining companies should bottom out in 2013, Standard & Poor’s Ratings Services said in a report published today.

"We expect the negative credit outlook for Asia-Pacific metals and minerals companies to moderate in 2014," Standard & Poor’s credit analyst May Zhong says. "We believe production volumes will ramp up in the sector, operation margins will level out as companies cut costs and improve productivity, and cash holdings will be preserved as growth capital expenditure is deferred."

Nonetheless, S&P expects the improvement in credit metrics will be slow and modest.

Commodity prices are unlikely to bounce back strongly in the next 12-18 months because of pockets of oversupply for certain minerals, such as coking and thermal coal and nickel, and metals such as steel and aluminum.

The weak commodity prices would hamper a strong recovery in earnings and cash flows.

Meanwhile, the rating firm expects the region’s oil and gas refiners and marketers to face a largely stable credit outlook in 2014 as regional energy demand remains strong.

"We have seen oil and gas companies’ spending plans spike by almost 80% since 2008. We believe these spending plans will remain elevated in 2014, considering the growth in energy demand," says credit analyst Lawrence Lu. "However, companies retain some discretion to reduce spending related to mergers and acquisitions should operating conditions deteriorate."

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