Fitch: Latin American miners to see better H2 amid recovery in China, Brazil

Monday, 12 October 2020 17:43:11 (GMT+3)   |   Istanbul

According to global credit rating agency Fitch Ratings, Latin American metals and mining companies’ results for the second quarter of this year were mixed, but exceeded Fitch’s April expectations for the sector. The performance of these companies in the second half of this year will be even stronger due to the robust steel output in China that has boosted prices for most products such as iron ore.

The uneven performance in the region was illustrated by Brazilian steel producers. Usiminas saw domestic steel sales fall by 42 percent compared to the first quarter of the current year. Gerdau’s domestic sales fell by only one percent compared to the previous quarter. CSN’s domestic sales decreased by 21 percent, while its export sales increased by six percent. Vale’s production volumes were negatively affected by poor weather conditions. 

Fitch sees continued favorable prices and improved sales volumes for miners and steel producers. Fitch does not assume a second round of lockdowns globally, despite the increasing number of new coronavirus cases in some regions. According to Fitch, coronavirus containment delays are expected to hit demand in Europe, the United States and Latin America and, without more demand from outside of China, the price improvements Fitch forecasts will not be sustainable.

Sporadic recurring lockdowns interrupting iron ore production will continue to support prices. The impact of sporadic lockdowns will be pan-regional as commodity prices are determined globally and export markets are key destinations for producers. 

Besides the economic growth in China, the recovery of the Brazilian economy will also play a key role in the performance of the steel producers. The trends on both fronts have been positive. In September, Fitch revised China’s 2020 GDP growth forecast to 2.7 percent from 1.2 percent in June following the stronger-than-expected growth in the second quarter this year. Fitch also revised its forecast for Brazil and now projects a decline of 5.8 percent compared to 7.0 percent, as consumer and business confidence began to recover.

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