Fitch: Mining Outlook Weakens Further on Falling Chinese Demand

(The following statement was released by the rating agency)Link to Fitch Ratings' Report: 2016 Outlook: Global Mininghttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874187LONDON, December 03 (Fitch) Fitch Ratings' outlook for the global mining sector in 2016 is firmly negative, reflecting our view that Chinese demand will continue to weaken in the coming year and that commodities will remain deeply unpopular with investors.The slowdown in Chinese demand has already created substantial oversupply in some commodities, including iron ore and aluminium, and we expect this trend to continue in 2016 as the Chinese economy undergoes a gradual deleveraging and transition from investment to consumer-led growth. Average prices for these two commodities are therefore likely to be lower in 2016, as are prices for copper and zinc. Nickel could prove an exception to the trend, due to mine closures and falling Chinese nickel pig iron production, but this is far from certain.Most mining companies now have weak credit profiles for their current rating, and this is reflected in the fact that most large international mining companies are on Negative Outlook or Rating Watch Negative.We expect companies to continue to focus on cost control and short-term liquidity management in 2016. But they will find it harder to use cost cuts to aid debt reduction because the falling diesel prices and beneficial exchange rate moves that helped them in 2015 are unlikely to be repeated. Big reductions in capex budgets are similarly largely complete. This means more mining companies are likely to come under increasing pressure to cut their dividends to boost free cash flow in 2016 following relatively modest reductions in shareholder returns so far.For more information on our expectations for the sector, see the report "2016 Outlook: Global Mining" available at www.fitchratings.com or by clicking the link above.Contact: Peter ArchboldSenior DirectorCorporates+44 20 3530 1172Fitch Ratings Limited30 North ColonnadeLondon E14 5GNMonica BonarSenior DirectorCorporates+1 212 908 0579Simon KennedyDirectorFitch Wire +44 20 3530 1387Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com.The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.