Worst Is over for U.S. Metals, Mining Sector–S&P

Source:

"Gold continues to be a bright. . .a trend we expect to continue."

Standard & Poor's said Tuesday that the worst is likely over for the U.S. metals and mining sector.

S&P noted, "Gold continues to be a bright spot in the sector. Its price remains high, partly reflecting its role as a store of value in tough economic times, a trend we expect to continue."

"Our optimism, however, is subdued," said S&P credit analysts because demand and prices have not consistently improved across the sector, "or even within subsectors, and we expect recovery to be choppy."

Producers of exchange-traded metals have benefited to varying degrees from price increases as a result of Chinese demand some speculation, and investors anticipating further recovery in western economies. "Nonetheless, we continue to believe that the worst is likely over for the sector and the credit quality should track the recovery in end-markets during the coming months," the analysts advised.

S&P said the following factors are essential to support credit quality in the metals and mining sector: economic growth; Chinese economic policy; producer discipline; auto demand; liquidity position/cash flow generation; and M&A activity.

The analysts' outlook for base metals is mixed. Outside of China, end markets for copper remain relatively weak "and we expect only slow gradual improvements. That could cause copper prices to decline from these lofty levels, though we expect copper pricing to be strong enough to support current ratings."

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