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Is The Mining Industry Prepared For A Coronavirus Commodity Slump?

Coronavirus Commodity Slump

The metals and mining sector will be moderately exposed as a result of the ongoing coronavirus outbreak worldwide, said Moody’s in its latest report on global sectors based on data collected as of mid-March.

The fall in commodity prices will have an adverse effect on those in the industry. However, analysts at Moody’s believe many producers have improved since the last commodity slump in 2015-2016, which caused significant hardship for smaller, less-diversified companies and drove a steep rise in the number of defaults. Now, more global, higher-rated companies are in general better able to withstand a market downturn.

The global spread of coronavirus will slow economic growth significantly, which will, in turn, amplify its effect on several sectors, Moody’s asserts.

The firm recently revised its GDP growth forecasts for the advanced G-20 economies to 1.0 percent in 2020, down from 1.7 percent in 2019, and for the emerging G-20 to 3.8 percent in 2020, down from 4.2 percent in 2019, including a substantive slowdown in China. The baseline scenario assumes a normalization of economic activity in the second half of the year.

Moody’s cautions that the ability of some companies to withstand the effects of the virus will depend on its duration, and as events unfold on a daily basis, there is a higher than usual degree of uncertainty around its forecasts and assessment will evolve over time with new developments.

The following chart details the level of exposure for the major sectors around the world based on Moody’s research.

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