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10 Jun 2009
Hong Kong, June 10, 2009 -- Moody's Investors Service has a negative outlook for the base-metals,
mining, and steel industries in Asia Pacific over the next 12-18
months. The negative view matches Moody's outlook for the
sector elsewhere in the world.
The agency's lead regional analyst for metals and mining,
Terry Fanous, a senior vice president, says, "China's
strategic stockpiling and replacement of lower-quality domestic
production with higher-quality imports have supported the recent
rally in prices for many base metals, but we will not see a sustainable
turnaround in demand until the major economies of the U.S.,
Europe, and Japan recover."
Fanous does not expect such a recovery before 2010 and says it is likely
to be gradual and sluggish, adding, "We therefore expect
the financial profile of the sector to be weak in 2009 and well into 2010,
particularly because there have not been major improvements on the cost
side to neutralize the pressures on output pricing and production."
Fanous notes, "In the current environment of a weak global
economy and uncertain capital markets, companies more likely to
maintain their ratings include those that enjoy product diversity,
conservative financial leverage, limited refinancing risk through
2010, and manageable programs of capital expenditure over the next
2-3 years." He says that such companies include BHP
Billiton, which Moody's rates A1 with stable outlook,
and which had maintained a superior financial profile going into the current
downturn. "As such, last week's announced JV with Rio Tinto
(rated Baa1/stable), and which entails a payment of up to US$5.8
billion over the next 12 months, is manageable within BHP Billiton's
Chris Park, a Moody's vice president in Hong Kong, says
"Ratings within the steel sector have become more vulnerable in
the global recession because much lower sales volumes and prices -
due to weak demand and overcapacity - have put margins under pressure."
According to Park, these challenges have contributed to the change
in outlook of POSCO and the downgrade of Tata Steel's ratings in
With regard to China, Park says, "The ongoing slump
in China's property and export sectors, which are key users
of global bulk commodities such as steel, may ultimately benefit
from the stimulus packages in China and abroad, but the full effects
of these stimulus policies remain to be seen."
Laura Acres, a Moody's vice president, says, "In
contrast to other regional issuers, rated Indonesia producers of
thermal coal enjoy stable outlooks as they have locked in favorable long-term
contract prices and enjoy strong demand for their output from domestic
and North Asian utilities."
Fanous also adds that , "Liquidity profiles vary within the
sector. Investment-grade issuers have manageable positions
supported by appropriate levels of balance-sheet and alternate
liquidity and manageable levels of capital expenditure, despite
their weakened operating cash flows."
"However," he adds, "pressure on cash flows
and the absence of any meaningful bank credit have strained the liquidity
of some high-yield issuers." He noted that risk aversion
in credit markets is another factor behind the weakened liquidity profile
of such issuers, which include Bemax (rated Caa1) Griffin Coal (rated
B3), and G Steel (rated Ca, with a negative outlook).
For further details on the sectors' issuers in the region,
please refer to Moody's previous regional outlook, published
at www.moodys.com in May 2008 and entitled "Industry
Outlook -- Snapshot: Asia-Pacific Base Metals,
Mining, and Steel: Stable Outlook Amid Margin Pressure".
For a global perspective, readers can access a report from April
2009, entitled "Global Base Metals Industry Outlook --
Six-Month Update" and a special comment from January 2009:
"Leveraged Finance Industry Updates: Mining, Steel,
and Coal Industries".
In Asia Pacific, since last May's outlook, Moody's has
downgraded Asia Aluminum four times, Bemax, Griffin Coal and
G Steel (each on three occasions), Tata Steel (twice), and
Vedanta, while revising BHP Billiton's outlook to stable from negative
after it withdrew its takeover bid for Rio.
In determining corporate ratings, Moody's uses its rating methodologies
on the global mining industry, published in May 2009, and
on the global steel industry, from January 2009.
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Senior Vice President
Corporate Finance Group
Moody's Investors Service Pty Ltd
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Moody's Negative Outlook for Asia-Pacific Metals, Mining, & Steel
Corporate Finance Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
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