 "A worker cuts a metal pipe inside a steel furniture production factory in Ahmedabad")
Slowing growth in China and Brazil, muted conditions in Europe and weak recovery in the US economy will continue to put pressure on global prices of base metals, ratings agency Moody's Investors Service said on Monday.
Weakening macro economic growth indicators and negative investor sentiment will weigh on base metal industry fundamentals through 2016, it said. Due to this, Moody's outlook for the industry remains negative.
“Base metal prices won't materially change over the next 12 to 18 months, in our view, and could face further downside risk,” the agency said. The prices saw a sharp drop in July and August, and are expected to continue to trade at lower levels, given the expectations for reduced demand and slower growth rates, it said.
Though cost curves have moved lower, a steeper price decline will hurt earnings performance for the industry. Companies have reduced controllable costs such as capital expenditure and exploration expenses to boost liquidity but such actions could out pressure on their credit profiles over the medium term if producers need to develop projects in a more costly or politically difficult climate, explained Moody's.
However, Moody's will change its outlook for the industry if the purchasing managers' indexes (PMIs) in large economies, also huge consuming nations, is consistently up.
“We could change the outlook to stable if PMIs in Europe, China and the US, the key consuming regions, track between 50 and 55 (above 50 indicates growth) for at least two consecutive months, and if Moody's global macro outlook is for GDP (gross domestic product) growth of between three per cent and four per cent. A positive outlook would require PMIs in the US, Europe and China exceeding 55 for at least three consecutive months, and for Moody’s global macro outlook for GDP growth to be greater than four per cent,” said Moody's.
