Sydney--Some of the world's biggest iron ore miners were Tuesday placed on "credit watch negative" by Standard and Poor's, as ore prices plunge due to a supply glut and soft Chinese demand.
The global ratings agency said the credit watch change was due to a lowering of its iron ore price forecasts to US$45 per tonne for the rest of this year, to $50 for next year and $55 for 2017.
The previous forecasts were $65 this year and 2016, and $70 for 2017.
The price of the ore, a key ingredient in steelmaking, has fallen by 60 percent over the past 12 months to reach a decade-low of $47.08 in early April.
The eight iron ore producers being watched by S&P are Anglo-Australian giants BHP Billiton and Rio Tinto, Brazil's Vale, Australia's Fortescue Metals, Anglo-South African firm Anglo American, Chile's CAP, Luxembourg-based Eurasian Resources and South Africa's Exxaro Resources.
"The revision of our price assumptions and the sharp fall of iron ore spot prices reflect the severe supply and demand imbalance in the market, which we believe could persist for the next two years," S&P said in a statement.
It added that the lower price forecasts were due to the continued increase in iron ore supply by major miners, softer growth in Chinese demand and higher-cost producers remaining in the market longer than expected.
S&P also placed Western Australia on credit watch negative, saying tumbling iron ore prices would "considerably reduce" its mining royalties. The state is heavily dependent on the mining sector for growth.
A credit watch meant there was a 50 percent chance of a rating change, which in these cases was downwards, S&P's managing director for corporate ratings Anthony Flintoff said in a briefing, adding that the agency would announce its decisions within 90 days.
Ongoing concerns about the slumping price saw shares in BHP and Rio lose ground in Australia Tuesday. BHP fell 1.02 percent to close at Aus$29.12 while Rio slipped 0.62 percent to end at Aus$54.96.
AFP
