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In an outlook report released Thursday, Moody’s Investors Service downgraded its 12-month sector rating on metals and mining stocks to negative from stable. The rating change reflects Moody’s expectations regarding credit fundamentals for the year ahead.
Slower economic growth is reducing demand for metals and mining products. This drives down commodity prices and corporate profits.
Aluminum prices have fallen nearly 44% since hitting an all-time high in early March. Over the past 12 months, prices have fallen by more than 25%. Moody’s cites higher energy and raw material costs, particularly in Europe, as drivers of lower margins and profits. Shares of Alcoa Corp. (NYSE: AA) have lost more than 40% of their value in the past 12 months and are down 61% since their 52-week high in March.
Nickel is currently trading more than 26% higher than a year ago, but that’s nearly 50% below its all-time high in mid-March. Nickel supply is growing, Moody’s noted, but demand is not keeping pace. Demand for stainless steel, of which nickel is a key ingredient, is also slowing. Demand for nickel in lithium-ion battery cathodes is increasing, helping to offset the lack of demand elsewhere. Brazil’s Vale SA (NYSE:VALE) produced 12% of the world’s nickel in 2021, just behind Russian producer Nornickel. Vale shares are down about 12% for the year and about 35% from their April peak.
Copper prices have fallen about 21% in the past 12 months and about 31% since their peak in March. Moody’s expects producer margins to continue to decline due to lower production volume, higher input costs and lower prices. The good news is that even the lowest prices remain above costs for marginal producers, keeping the industry profitable. Freeport-McMoran Inc. (NYSE: FCX) is the world’s largest publicly traded copper producer. The stock has fallen steadily over the past year and is down about 47%.
Zinc prices are down about 3% over the past year, but the decline since the mid-April peak is almost 33%. Moody’s notes that zinc prices already reflect recession risks. Inventories remain tight despite the rise in electricity prices in Europe which forces foundries to reduce production. Analysts do not expect prices to drop significantly unless demand weakens further. The largest zinc mine in the world is operated by Teck Resources Ltd. (NYSE: TEAK). Its shares are up about 21% in the past 12 months, but since posting a week 52 in early June, the stock is down about 35%.
Gold prices are down about 6% in the last 12 months and silver is down almost 16%. Moody’s blames higher interest rates and a stronger US dollar for driving investment away from precious metals. Analysts expect producer revenues to decline as costs rise, squeezing margins and reducing EBITDA. Input costs hit a 10-year high in the first quarter of this year due to fuel prices, electricity tariffs, higher wages and higher consumable prices. Newmont Corp. (NYSE: NEM) is the world’s largest producer of gold. Shares are down about 24% in the past 12 months and about 50% from the 52-week high posted in April.
The supply of platinum group metals (PGMs), according to Moody’s, is expected to remain stable over the next few years. The excess supply of platinum is being absorbed while a deficit of palladium is shrinking. Russia, the world’s largest supplier of palladium, remains a joker. Platinum prices are down about 12.5% over the past year. The American company Sibanye Stillwater Ltd. (NYSE: SBSW) is the third largest producer of platinum in the world. The shares have fallen about 41% in the past year and more than 58% since their peak in March.
Steel prices have fallen about 34% from their 52-week high last October. Moody’s attributes the decline to supply chain disruptions, COVID-19-related lockdowns and weaker residential construction in China, as well as inflationary cost pressures and rising interest rates weighing on both on sentiment and growth. A shift to less carbon-intensive production methods could further increase costs. ArcelorMittal SA (NYSE: MT) is the world’s largest steel producer. Over the past 12 months, the stock has fallen almost 31%. Since hitting a 52-week high in January, stocks have fallen about 45%.
Iron ore prices have fallen about 6% over the past year, but have fallen 37% since their peak in early March. Moody’s expects prices to remain in the range of $80 to $125 per metric ton (current price is around $100). Stocks are also rising and the premium for higher-grade ore is shrinking, signaling a surplus in major metal markets. In addition to being the world’s largest nickel producer, Vale is also the world’s largest producer of iron ore. The company’s reserves have been estimated to be productive for almost 400 years.
Coal miners’ revenues will fall as coal prices fall, but current supply constraints could keep prices higher “for an extended period, tempering the decline in revenues”, according to Moody’s. Coal prices have risen nearly 135% over the past 12 months. Peabody Energy Corp. (NYSE: BTU) is the largest coal miner in the United States, but not in the top 10 globally. Since the start of the year, the shares have doubled, and in the past 12 months the stock has risen around 52%. %. Since hitting a 52-week high in mid-April, the stock has fallen about 37%.
What could cause Moody’s to revise its outlook? Here’s what analysts will be watching:
We would consider changing the industry outlook to stable if we expect rated companies to generate overall EBITDA growth (0%-10%) over the next 12-18 months. Such growth would be driven by an increase in economic activity, which is supporting demand, or by tighter supply from lower-than-expected production in key producing regions. Both scenarios would support prices and EBITDA growth.
Invest
In an outlook report released Thursday, Moody’s Investors Service downgraded its 12-month sector rating on metals and mining stocks to negative from stable. The rating change reflects Moody’s expectations regarding credit fundamentals for the year ahead.
Slower economic growth is reducing demand for metals and mining products. This drives down commodity prices and corporate profits.
Aluminum prices have fallen nearly 44% since hitting an all-time high in early March. Over the past 12 months, prices have fallen by more than 25%. Moody’s cites higher energy and raw material costs, particularly in Europe, as drivers of lower margins and profits. Shares of Alcoa Corp. (NYSE: AA) have lost more than 40% of their value in the past 12 months and are down 61% since their 52-week high in March.
Nickel is currently trading more than 26% higher than a year ago, but that’s nearly 50% below its all-time high in mid-March. Nickel supply is growing, Moody’s noted, but demand is not keeping pace. Demand for stainless steel, of which nickel is a key ingredient, is also slowing. Demand for nickel in lithium-ion battery cathodes is increasing, helping to offset the lack of demand elsewhere. Brazil’s Vale SA (NYSE:VALE) produced 12% of the world’s nickel in 2021, just behind Russian producer Nornickel. Vale shares are down about 12% for the year and about 35% from their April peak.
Copper prices have fallen about 21% in the past 12 months and about 31% since their peak in March. Moody’s expects producer margins to continue to decline due to lower production volume, higher input costs and lower prices. The good news is that even the lowest prices remain above costs for marginal producers, keeping the industry profitable. Freeport-McMoran Inc. (NYSE: FCX) is the world’s largest publicly traded copper producer. The stock has fallen steadily over the past year and is down about 47%.
Zinc prices are down about 3% over the past year, but the decline since the mid-April peak is almost 33%. Moody’s notes that zinc prices already reflect recession risks. Inventories remain tight despite the rise in electricity prices in Europe which forces foundries to reduce production. Analysts do not expect prices to drop significantly unless demand weakens further. The largest zinc mine in the world is operated by Teck Resources Ltd. (NYSE: TEAK). Its shares are up about 21% in the past 12 months, but since posting a week 52 in early June, the stock is down about 35%.
Gold prices are down about 6% in the last 12 months and silver is down almost 16%. Moody’s blames higher interest rates and a stronger US dollar for driving investment away from precious metals. Analysts expect producer revenues to decline as costs rise, squeezing margins and reducing EBITDA. Input costs hit a 10-year high in the first quarter of this year due to fuel prices, electricity tariffs, higher wages and higher consumable prices. Newmont Corp. (NYSE: NEM) is the world’s largest producer of gold. Shares are down about 24% in the past 12 months and about 50% from the 52-week high posted in April.
The supply of platinum group metals (PGMs), according to Moody’s, is expected to remain stable over the next few years. The excess supply of platinum is being absorbed while a deficit of palladium is shrinking. Russia, the world’s largest supplier of palladium, remains a joker. Platinum prices are down about 12.5% over the past year. The American company Sibanye Stillwater Ltd. (NYSE: SBSW) is the third largest producer of platinum in the world. The shares have fallen about 41% in the past year and more than 58% since their peak in March.
Steel prices have fallen about 34% from their 52-week high last October. Moody’s attributes the decline to supply chain disruptions, COVID-19-related lockdowns and weaker residential construction in China, as well as inflationary cost pressures and rising interest rates weighing on both on sentiment and growth. A shift to less carbon-intensive production methods could further increase costs. ArcelorMittal SA (NYSE: MT) is the world’s largest steel producer. Over the past 12 months, the stock has fallen almost 31%. Since hitting a 52-week high in January, stocks have fallen about 45%.
Iron ore prices have fallen about 6% over the past year, but have fallen 37% since their peak in early March. Moody’s expects prices to remain in the range of $80 to $125 per metric ton (current price is around $100). Stocks are also rising and the premium for higher-grade ore is shrinking, signaling a surplus in major metal markets. In addition to being the world’s largest nickel producer, Vale is also the world’s largest producer of iron ore. The company’s reserves have been estimated to be productive for almost 400 years.
Coal miners’ revenues will fall as coal prices fall, but current supply constraints could keep prices higher “for an extended period, tempering the decline in revenues”, according to Moody’s. Coal prices have risen nearly 135% over the past 12 months. Peabody Energy Corp. (NYSE: BTU) is the largest coal miner in the United States, but not in the top 10 globally. Since the start of the year, the shares have doubled, and in the past 12 months the stock has risen around 52%. %. Since hitting a 52-week high in mid-April, the stock has fallen about 37%.
What could cause Moody’s to revise its outlook? Here’s what analysts will be watching:
We would consider changing the industry outlook to stable if we expect rated companies to generate overall EBITDA growth (0%-10%) over the next 12-18 months. Such growth would be driven by an increase in economic activity, which is supporting demand, or by tighter supply from lower-than-expected production in key producing regions. Both scenarios would support prices and EBITDA growth.