(The following statement was released by the rating agency)
Oct 8 - Link to Fitch Ratings' Report: Steel Raw Materials Update Ã¢ÂÂScarcity PremiumDisappears
Fitch Ratings expects lower prices coupled with increased cost pressuresand, in some instances, curtailed production to result in lower earnings andoperating cash flows in 2012 and 2013 relative to 2011. In a new reportpublished today, Fitch details its expectations for the iron ore andmetallurgical coal markets and profitability for producers thereof.
Worldwide steel production should grow 2 - 3% in 2013 after scant growth in2012. Severe destocking through the supply chain in China this summer resultedin spot prices for steel raw materials breaking marginal cost. Curtailedproduction and announcements of stimulus spending have improved prices but notnearly to levels when supply was tight. Fitch expects prices to be near marginalcosts but to afford reasonable margins to average and low cost producers.Destocking, weather events and/or labor actions could disrupt shipments andaffect prices, earnings and cash flow over the short term.
Project and operating cost escalation as well as the outlook for lower pricesoccurs with a resurgence of shareholder risk aversion and demand for higheryields. Capital is already being rationed with lower budgets and divestiture ofnoncore assets. Strong liquidity and modest leverage going into this periodaffords time for producers to manage to a lower price environment. Fitch doesnot expect miners to stretch their capital structures or liquidity.
Fitch published the report 'Steel Raw Materials Update', available at'
Additional information is available at '
'.(New York Ratings Team)