The outlook for the global mining sector has turned negative due to slowing economic growth, says Moody’s Investors Service.
In a new report, the rating agency said it revised its global outlook for the mining sector to negative from stable, citing expectations that cash flows and profits will decline for the industry’s largest firms in the year ahead amid weaker demand.
“The slowing economic growth across the globe is reducing the demand for metals and mining commodities,” Moody’s said.
This is leading to lower commodity prices and weaker earnings.
In particular, Moody’s sees cash flows coming under pressure for copper, zinc, nickel and aluminum producers.
While steel prices may remain above their historical averages, a recent decline in prices will “significantly reduce” companies’ cash flows, the report noted.
“EBITDA and prices are decreasing as business and macroeconomic conditions weaken. They will remain higher than in pre-pandemic years but below the record-high levels seen in early 2022,” said Barbara Mattos, senior vice-president at Moody’s, in a release.
“In addition, energy and raw materials costs remain high, particularly in Europe, which will also reduce producers’ margins and earnings of producers of base metals.”
For precious metals, Moody’s noted that gold and silver prices are both declining “as higher interest rates and a stronger U.S. dollar” have curbed their appeal as safe haven investments.
“Unlike other metals, market sentiment rather than fundamentals such as supply and demand, influences pricing in this industry creating a drop in producers’ revenues,” it said.