Asia-Pacific steel, aluminium firms face negative credit outlook - S&P
May 3 (Reuters) - Asia-Pacific steel and aluminium companies may face credit downgrades as their profits suffer due to a supply glut and weak demand as global growth slows, rating agency Standard & Poor's warned on Thursday.
It also warned that aggressive capital spending plans and rising labor, energy and raw materials prices at a time of softening commodity prices could threaten what it sees as steady credit prospects for copper, iron ore and coking coal producers.
"We expect profitability in the metal sector to take a hit in fiscal year 2012 - even in a soft landing scenario for the Chinese economy," S&P said in a report card on Asia-Pacific metals and mining companies on Wednesday.
Steel companies exposed to construction, shipbuilding and infrastructure were likely to be worst hit if Chinese economic growth fell short of S&P's forecast of 8.3 percent, the ratings agency said.
In the aluminium sector, it said conditions were likely to remain challenging, even if producers cut supply further, with Aluminum Corp of China (Chalco) and Australia's Alumina Ltd most at risk from weak prices, among the producers S&P rates.
Rising fuel costs in Indonesia and Mongolia, rising electricity costs in China and tight labor supply and energy cost increases in Australia could dent the prospects of miners across the region.
"One of the key risks we see for the mining sector in 2012 is the persistence of elevated input costs. The problem is more acute for Australia," S&P said.
It did not expect any let-up in capital spending in 2012, which it put at $60 billion across the region for the metals and mining companies it rates, even with commodity prices slipping.
"Flexibility to defer capital expenditure and management discipline in spending should operating conditions be weaker than expected would be crucial to maintaining the rating on a company," it said.
S&P's comments coincided with efforts by global miner BHP Billiton and Rio Tinto to reassure investors that they may slow planned capital spending in Australia in light of escalating project costs and a weaker outlook for commodities.
BHP reiterated this week that maintaining a solid 'A' credit rating is one of its top priorities.
Australian miners have been highlighting escalating costs this week, fearing the Australian Labor government is going to cut tax rebates worth billions of dollars to the mining industry in its 2012-13 budget on May 8.
(Reporting by Sonali Paul; Editing by Richard Pullin)
It also warned that aggressive capital spending plans and rising labor, energy and raw materials prices at a time of softening commodity prices could threaten what it sees as steady credit prospects for copper, iron ore and coking coal producers.
"We expect profitability in the metal sector to take a hit in fiscal year 2012 - even in a soft landing scenario for the Chinese economy," S&P said in a report card on Asia-Pacific metals and mining companies on Wednesday.
Steel companies exposed to construction, shipbuilding and infrastructure were likely to be worst hit if Chinese economic growth fell short of S&P's forecast of 8.3 percent, the ratings agency said.
In the aluminium sector, it said conditions were likely to remain challenging, even if producers cut supply further, with Aluminum Corp of China (Chalco) and Australia's Alumina Ltd most at risk from weak prices, among the producers S&P rates.
Rising fuel costs in Indonesia and Mongolia, rising electricity costs in China and tight labor supply and energy cost increases in Australia could dent the prospects of miners across the region.
"One of the key risks we see for the mining sector in 2012 is the persistence of elevated input costs. The problem is more acute for Australia," S&P said.
It did not expect any let-up in capital spending in 2012, which it put at $60 billion across the region for the metals and mining companies it rates, even with commodity prices slipping.
"Flexibility to defer capital expenditure and management discipline in spending should operating conditions be weaker than expected would be crucial to maintaining the rating on a company," it said.
S&P's comments coincided with efforts by global miner BHP Billiton and Rio Tinto to reassure investors that they may slow planned capital spending in Australia in light of escalating project costs and a weaker outlook for commodities.
BHP reiterated this week that maintaining a solid 'A' credit rating is one of its top priorities.
Australian miners have been highlighting escalating costs this week, fearing the Australian Labor government is going to cut tax rebates worth billions of dollars to the mining industry in its 2012-13 budget on May 8.
(Reporting by Sonali Paul; Editing by Richard Pullin)
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