The financial ratings of major Australian iron ore exporters are unlikely to be hurt by expected slowing growth in China this year, according to a global ratings agency.
Matt Jamieson, the head of Asia-Pacific Research at Fitch’s Corporate Ratings Group, said if there was a dramatic slowdown in iron ore orders from China, the operating and financial profiles of major Australian iron ore producers should fare relatively well.
“This is because they are high-grade and low-cost producers, so in a weaker demand/price environment they can still generate good project returns when the viability of other producers comes under question. Additionally, BHP Billiton and Rio Tinto both enjoy significant commodity diversification in addition to iron ore production,” Jamieson says.
BHP Billiton is currently rated by Fitch as ‘A+’, Rio Tinto is ‘A-‘ and Fortescue Metals Group is rated ‘BB+’ – all considered stable figures.
BHP Billiton has estimated the price of iron ore is unlikely to fall below $US120 per metric ton, compared with $US145/mt currently – despite forecasts that Chinese demand is likely to fall to single-digit growth in 2012.
“If this view is correct, then its iron ore margins are likely to remain robust given that $US120/mt is well above Fitch’s long term ‘through-the-cycle’ price assumption,” Jamieson says.
“It is also well above the $US90/mt, where Fitch believes it will become uneconomical for local Chinese production, but still profitable for the Australian exporters.”