NEW YORK--()--The 2013 outlook for Latin American metals and mining is stable and companies are expected to remain profitable despite commodity price fluctuations, according to a new Fitch Ratings report.
'Metals and mining companies in Latin America mostly exhibit very low leverage, strong debt and interest coverage ratios, and high levels of liquidity, enabling them to absorb the impact of price volatility without endangering their credit profiles during 2013,' said Jay Djemal, a Director at Fitch Ratings.
'Brazilian steel has exhibited the steepest deterioration in credit metrics over the last year. Challenges affecting profitability over the last two years include a strong currency, higher steel product import volume, and a rise in raw material, energy, and labor costs.'
Fitch's mid-cycle copper price assumptions as of September 2012 are USD3.40 per lb. in 2013, with a long-term price of USD2.72 per lb. in 2014, resulting in an expected healthy level of profitability over the next two years. Issues to be faced in 2013 are declining ore grades and increased operating costs, including labor, materials and energy.
Stand-alone Latin American iron ore mining companies benefit from high iron ore content at their mines and exhibit strong capital structures resilient to fluctuations in price and demand. Fitch's 2013 iron ore price assumption is USD110 per metric ton, with a long-term price of USD90 per metric ton from 2013 onward. These prices are above marginal cost and will allow companies with high-grade ore content to maintain healthy profitability next year.
Higher operating costs will continue in 2013 for metals and mining. Cost pressures will increase for power, fuel, labor, operating materials, and maintenance. Engineering costs have also increased due to a dearth of qualified mining experts. Cost efficiency programs will help tackle the higher cost environment in 2013.
For more information, a special report titled '2013 Outlook: Latin American Metals and Mining' is available on the Fitch Ratings web site at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2013 Outlook: Latin American Metals and Mining