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Moody’s mining sector outlook – reduced demand will negatively impact companies’ earnings

Economic slowdown continues to soften the metals and mining industry, the reduced demand for metals and mining commodities will impact companies’ earnings, says Moody’s senior vice president Barbara Mattos.

The down-turn is affecting prices, which consequently reflects a decreasing profitability for the industry. Prices remain higher than in pre pandemic years but are below the record high levels seen in early 2022. In Europe, energy and raw material costs remain high, reducing producers’ margins and the earnings of base metal producers.

Producers of copper will face EBITDA declines due to lower production volumes in certain regions, higher input costs and lower prices, expects Moody.

In the main copper-producing regions such as Chile and Peru, there will be low inventory levels and supply challenges limiting copper price declines.

Zinc, nickel and aluminium producers will also have EBITDA decrease as high energy and key raw material costs impact margins and reduce production in Europe, while weakening economic growth weighs on demand around the globe. Companies will see a reduction in margins and earnings.

Due to the stronger US dollar and higher interest rates, Moody sees both the precious metals, gold and silver, declining in price, Moving away from the ‘safe-haven investment’ view. Furthermore, supply and demand influences pricing in this industry creating a drop in the producers’ revenue, negatively affecting precious metals miners’ EBITDA.

Coal prices are retreating from record high levels seen earlier this year, resulting in miners’ EBITDA decrease. However, ongoing supply constraints could keep prices above historical levels for a prolonged period, tempering the earnings decline.

The recent plunge in steel prices significantly reduced steelmakers’ EBITDA and cash flow. Focusing particularly in China, and seasonally higher production volumes in Australia and Brazil, weakness in global steel production, will squeeze prices and consequently, EBITDA for major iron ore producers.

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The data used in this article was sourced from: