TEXT-Fitch: scarcity premium disappears for steel raw material miners

(The following statement was released by the rating agency)

Oct 8 - Link to Fitch Ratings' Report: Steel Raw Materials Update — Scarcity Premium Disappears

Fitch Ratings expects lower prices coupled with increased cost pressures and, in some instances, curtailed production to result in lower earnings and operating cash flows in 2012 and 2013 relative to 2011. In a new report published today, Fitch details its expectations for the iron ore and metallurgical coal markets and profitability for producers thereof.

Worldwide steel production should grow 2 - 3% in 2013 after scant growth in 2012. Severe destocking through the supply chain in China this summer resulted in spot prices for steel raw materials breaking marginal cost. Curtailed production and announcements of stimulus spending have improved prices but not nearly to levels when supply was tight. Fitch expects prices to be near marginal costs but to afford reasonable margins to average and low cost producers. Destocking, weather events and/or labor actions could disrupt shipments and affect prices, earnings and cash flow over the short term.

Project and operating cost escalation as well as the outlook for lower prices occurs with a resurgence of shareholder risk aversion and demand for higher yields. Capital is already being rationed with lower budgets and divestiture of noncore assets. Strong liquidity and modest leverage going into this period affords time for producers to manage to a lower price environment. Fitch does not 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)

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