Moody’s has downgraded RIO to Baa1 from A3 with a negative outlook:
…that there has been a fundamental downward shift in the mining sector with the downturn being deeper and prospects for a recovery extended, resulting in increased credit risk and weaker metrics…
The slowing economic growth rates in China materially impact the demand for base metals while the reducing steel production rates impact demand for iron ore and metallurgical coal – leading to lower prices. Supply imbalances, particularly in iron ore, the major earnings and cash flow driver for Rio Tinto, will maintain pressure on prices for several years.
While lower oil prices, lower freight costs, and currency depreciation contribute to reduced costs, the drop in prices has and will continue to significantly impact performance. In addition, the strong US dollar is a further factor contributing to weakening demand and driving prices lower since most metals are traded in dollars.
RIO has now slipped into “lower medium grade” status and is only three notches above junk. It fell nearly -6% in London trade before the downgrade then missed much of the New York rally ending down -3.5%.
