International credit rating agency Fitch Ratings has affirmed mining company Samarco’s rating at BBB, with a stable perspective, it said recently.
The rating is based on Samarco’s highly profitable operations, low-cost production for iron ore pellets, a positive BRL devaluation effect and sufficient liquidity profile, among other factors.
"The company continues to be competitive during difficult trading conditions because of its low-cost iron ore transportation through its slurry pipelines,” said Fitch Ratings, adding Samarco ships 97 percent of its production to steelmakers in 20 countries.
The rating agency also addressed expectations for lower pellet prices.
"Assumptions for Samarco in 2014 have a starting point of US$100 per metric ton (China import iron ore fines 62 percent CFR basis), as indicated by the agency's recently updated mid-cycle commodity price assumptions, taking into account expectations for pricing vis-a-vis the iron ore surplus expected over the next few years.”
According to Fitch, the price is then adjusted for 65 percent iron ore content and the mix of Blast Furnace (BF) and Direct Reduction (DR) pellets (higher Fe content of 67.5 percent), adding a conservative pellet premium of US$35 per DMT, and deductions relating to freight to reach US$122 per DMT for the year.
Samarco’s dependency on iron ore pellet demand is one the main sensitivities that may affect the company’s rating.
"Demand dynamics for iron ore pellets are improving, although they currently remain vulnerable to substitutes during troughs in the industry cycle. A prolonged period of low demand for iron ore pellets could lead to a negative action,” said the agency.
