International credit rating agency Moody’s has announced that it has upgraded the credit rating of Brazilian miner Vale to Ba2 from Ba3, with a positive outlook.
Moody’s stated that the upgrade to Vale’s rating reflects the substantial recovery in the company’s credit metrics observed during 2016, supported by its improvements in production profile, its low cost structure and financial discipline regarding capital expenditures and dividends, which enhanced its operating resilience and overall liquidity.
According to the credit rating agency, constraining the ratings are the challenging fundamentals for iron ore, Vale’s key earning driver, and base metals prices, as a consequence of the slowdown in China's economic growth and steel demand, which the World Steel Association (worldsteel) forecasts to decline by 12 percent compared to 2014 levels, bringing heightened uncertainty over demand for iron ore and base metals in the next few years.
Meanwhile, the positive outlook reflects Moody's expectation that Vale will maintain good liquidity position while reducing debt levels, and keep its ongoing focus on cost reduction.