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Fitch: Mining sector remains stable
In commenting on the potential market repercussions of the retirement announcements within the past six months of the chief executives of the world's three largest diversified mining companies, Fitch said that its outlook for the ratings of the large diversified mining sector remains stable. The companies referenced are Rio Tinto (rated A+/F1/stable outlook), Anglo American (A/F1/stable outlook) and BHP Billiton.
In other instances the departure of a long serving and successful CEO has often been a precursor to a decline in the fortunes of the company and/or a weakening of market conditions, the agency said. One interpretation of these current management changes is that the CEOs are exiting at the peak of the current commodity price cycle, Fitch said.
In this instance, however, Fitch said its view is that the outlook for commodities remains positive throughout 2007 and into early 2008. While global economic activity is expected to be moderately weaker in 2007 compared to 2006, demand for metals is likely to remain strong driven by continuing strong GDP growth in China of close to 10%, the agency said. This, combined with low stock levels for most commodities, continuing production constraints and the consolidated nature of some metal segments, is expected to see prices remain at historically high levels for at least the next 12 months, Fitch said.
Fitch noted that high price volatility is expected to be an ongoing feature of commodity markets given the substantial levels of fund speculation in exchange traded metals. The key risk to market conditions in the coming year is a potential economic slowdown in the United States stemming from weakness in the housing market, Fitch said and the impact this may have on global economic activity generally.
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