Mining and energy companies are among the most exposed to the ongoing slowdown in the China’s economy, says Moody’s Investors Service in a new report.
The New York-based credit-rating agency singled out companies in the metals and mining, oil and gas, chemicals, steel, auto manufacturing and gaming sectors in the Americas as being “materially exposed” to China’s slowing economy.
Moody’s report notes that China accounted for about half of global consumption of base metals in 2014, suggesting that there is significant risk for the industry amid weak Chinese demand. Similarly, it says that weak demand from China could drag down volumes, prices and margins in the oil and gas sector and could also exacerbate the existing supply/demand imbalances in the chemicals, steel and gaming sectors.
“The sectors most at risk have either the highest proportion of revenue generated in China or a high level of indirect exposure,” says Tom Marshella, managing director at Moody’s, in a statement. “The metals and mining sector, for instance, is directly exposed in terms of both export volumes and the knock-on effect of lower prices, while the oil and gas sector is vulnerable to the indirect impact of Chinese demand on prices.”
Moody’s is maintaining its gross domestic product (GDP) growth forecast for China in 2015 at 6.8%, but it has revised its forecast for 2016 slightly downward to 6.3% from 6.5%. In addition, it suggests that China’s GDP growth is likely to slow toward 6% in the years ahead.
“While this represents a significant slowdown over previous years, China’s GDP growth rate still remains well ahead of most developed countries, with further policy support likely to keep the economic slowdown gradual,” Marshella notes.
The Moody’s report says that industries with modest exposure to China’s slowing economy include semiconductors, electronics manufacturing services, commercial aerospace, auto parts, consumer products, drug/medical devices and manufacturing. Sectors with little to no exposure to China include restaurants, paper and forest products, diversified technology, payment processors, retail, telecom, cable/media and airlines.