S&P has slashed commodity price forecasts as a result of sharply falling commodity prices. On the back of this assessment it has also flagged possible downgrades to many mining and energy companies. It has also indicated there may be cuts to credit ratings of oil and energy producing countries reflecting the ‘new reality’ of lower commodity prices.
One of the world’s biggest mining companies, BHP, has come under increased focus with its stated desire to maintain its ‘solid A’ balance sheet (the company currently has a long-term A+ rating from S&P and an A1 rating from Moody’s). The company’s commitment to a ‘progressive’ dividend policy of sustaining or raising its annual dividend is seen as increasingly vulnerable and will be watched closely when the company reports its half-year earnings in February.
S&P cut its 2016 and 2017 iron ore prices to USD$40 a tonne (or around 20%) as well as lowering its price forecasts for a range of other commodities including zinc, copper, nickel and aluminium. It’s oil price forecast had previously been cut to USD$45 a barrel.