top of page
Search

Outlook weak for metals, mining, but downside limited: S&P Global Ratings

Declining prices, demand, and consumption in 2019 factor into the dim 2020 outlook, but this could be indicative of economic weakness rather than industry downturn, S&P Global Ratings analysts said in their report, "Industry Top Trends 2020: Metals & Mining."

To contend with these challenges, "output reductions that rebalance consumption and inventories could be key to a pickup in prices and profits, particularly in steel and aluminum," the analysts said.


Metals prices for many commodities are approaching decade lows, which typically encourages production cuts, the analysts said, adding that the key issue could involve "the persistence of this downturn, rather than the depth."


As a point of comparison, the Platts TSI US hot-rolled coil index was calculated at $560.25/st ex-works Indiana December 16, down from $682.75/st January 31.


The Platts US Midwest aluminum transaction premium was calculated at 14.5 cents/lb December 16, down from 19.35 cents/lb January 31.


The need for production cuts was echoed in a recent US Steel Market Snapshot from Goldman Sachs analysts, which suggested recent capacity cuts following a year of supply expansions will have a positive effect on steel prices.


"Weak sheet steel prices, sequentially declining earnings, and concerns of blooming oversupply have been primary headwinds for many of the larger US steel stocks year to date, but prices are modestly strengthening, and initial signs of capacity closures have gained the market's attention,” the Goldman Sachs analysts said.


Investments critical for large steelmakers

Capacity curtailments and other deleveraging still may not adequately protect many US steel producers that are more exposed to risk from slower demand, the S&P Global Ratings analysts said in their report. This trend is pushing several steelmakers to spend more on acquisitions and infrastructure.


"Steelmakers in the US are making their boldest push in decades, spending $5 billion-$6 billion in the next few years and adding debt to build primary steelmaking capacity at mini-mills and at integrated facilities," the analysts said.


Recent activity from 2019 in the steel industry includes Steel Dynamics' investment in a new flat roll mill, Nucor's construction of a new plate mill, and US Steel's Mon Valley Works expansion and acquisition of 49.9% stake in Big River Steel.


Conversely, European steelmakers, such as ArcelorMittal, may focus on deleveraging and organic growth in 2020 to meet public gearing objectives, in response to the failure of key M&A transaction attempts, according to the report. These failures include the merger of Tata Steel and TK Steel that European regulators denied and ArcelorMittal's canceled acquisition of Ilva.


Mining expected to be conservative

The mining sector will likely remain conservative in 2020 to limit further price declines with a focus on organic growth over M&A, as "producers view prospective acquisitions as too expensive relative to brownfield expansion projects, nor do most acquisitions fit portfolios for reasons like country risk or exposure to specific commodities,” the S&P Global Ratings analysts said.


Fitch Solutions echoed the conservative sentiment expected in the metals and mining sectors in a recent report.


"Lingering fears of the global economy falling into recession over the coming months will continue to house poor sentiment for metals, which should keep a lid on prices," Fitch said.


While low prices have softened the market for many mining segments, slow global economic growth has boosted gold prices, S&P Global Ratings report. This may encourage continued asset transactions among gold miners in 2020.


"The decline in metals and mining equities in 2019 has slowed M&A to a trickle. That said, the gold sector looks primed for asset transactions, with large miners looking to shed less-productive assets after major acquisitions in the past year," the S&P Global Ratings analysts said.


COMEX gold spot prices climbed to $1,475/oz December 16, compared with a $1,320/oz settle January 31.


"We still see upside in gold as late-cycle concerns and heightened political uncertainty will likely support investment demand for gold as a defensive asset," Goldman Sachs said in a separate research note included in a December daily email report, in reference to the 2020 outlook.


Source: S&P Platts

Recent Posts

See All

Hello from Alpine Metals

Thank you for taking the time to visit our website and blog. In our aspiration to serve our customers, we have come up with the idea of...

コメント


bottom of page