Leading iron ore producers' credit ratings at risk

Monday, April 13, 2015

The fallout from plunging iron ore prices is starting to threaten the world's largest producers of the steelmaking input, accordingly to ratings agency Standard & Poor's.

S&P signaled on Monday that the credit ratings on Brazil's Vale, the globe's top iron ore producer, together with those of Anglo American, Australia's BHP Billiton, Rio Tinto, Chile's CAP and Fortescue Metals, among others, are all at risk due to deteriorating prices and a supply glut.

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"In our view, lower iron ore prices may not only weaken producers' operating cash flows and financial leverage, but may also affect the long-term resilience of some companies' business risk profiles, given the higher-than-anticipated earnings volatility due to iron ore-price swings," S&P said in a report.

The agency has lowered its price assumptions for iron ore to US$45/t, US$50/t and US$55/t for 2015, 2016 and 2017, respectively, and officially placed its ratings on eight iron ore producers on credit watch negative.

Increasing iron ore supplies have helped drive down prices for the commodity – the TSI 62%-Fe iron ore benchmark fell to US$47.30 on Friday, its lowest point in a decade.

S&P expects to decide whether to cut the miners' ratings in the coming two to three weeks after reviewing the effect on each issuer's financial and business risk profiles, the report said.