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Tuesday, January 27, 2015

Moody's changes its outlook for the global base metal industry to negative from stable

Negative outlook driven by global economic weakness and falling copper prices 

Moody's Investors Service changed its outlook for the global base metals industry to negative from stable, as a result of weakening macro-economic growth, falling investor sentiment in the sector and plunging copper prices, according to a new report, "Global Base Metals Industry: Economic Weakness and Copper Price Plunge Turn Outlook Negative." 

"Our change to a negative outlook on base metals is driven by a combination of factors," says Carol Cowan, a Moody's Senior Vice President and author of the report. "Slowing growth in China's GDP, continued weakness in Europe and falling copper prices have all contributed to our revised outlook." 

The slowing pace of economic growth in China does not bode well for the industry, given that China consumes more than 40% of base metal production. HSBC's Purchasing Managers' Index (PMI) for China registered 49.6 in December, down from 50 in November. Europe's economic doldrums are also weighing on the sector, even though the Markit Eurozone manufacturing PMI of 50.6 in December improved slightly from 50.1 in November. 

"Although the US economy is strong and consumption of base metals remains robust, it's not enough to counter weakening global trends," added Cowan. The US December 2014 PMI was 55.5, down from the 58.7 in November. 

The IMF recently lowered its forecast for global growth in 2015 to 3.5% from its previous 3.8% forecast in October 2014. The IMF also extended the lower growth rate forecast into 2016; this is another factor that does not bode well for base metal consumption growth, which is closely tied to industrial production and GDP globally.
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