Iron ore and copper to fuel growth for Latin America mining companies
Experts predict that strong demand for iron ore and copper means that the market outlook for metals and mining companies in the Latin America region remains "stable", even as they pursue significant expansion plans during 2011.
The majority of metals and mining companies in the region benefit from vertically-integrated operations, low cash cost of production and high ore grades with long life reserves, noted Fitch.
The ratings company pointed out that, combined, these companies issued over $6.7bn of bonds in 2010, taking advantage of favourable interest rates to fund "ambitious" capital expenditure programmes or refinance more expensive debt instruments.
"Robust economic performance in Latin America, especially in Brazil, has led to significant demand for steel, ensuring healthy profitability in the medium term. However, steel companies across the region continue to face challenges to their profit margins as a result of higher raw material input costs, especially for iron ore and metallurgical coal," Fitch cautioned.
"The successful pass-through of these higher costs to customers could be challenging, especially to steel producers with a large exposure to automotive manufacturers."
Fitch forecasts that iron ore, copper and related companies are expected to show the greatest financial performance among Latin American miners during 2011.
However, the analyst company noted that many of the companies producing these commodities are undergoing "significant plans for expansion" over the next few years: "The aluminum market is expected to remain fragile in 2011 due to its excess capacity, persistent surplus production, and high stock levels.
"The rating outlook for the region and sector is stable. Fitch expects the vibrant economies of Latin America to sustain healthy levels of internal demand for steel, while miners continue to benefit from strong demand from China into 2012."
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