In steel and metals mining, the credit outlook remains stable against the backdrop of a negative industry outlook. This reflects Fitch's approach of rating companies in cyclical industries through the price cycle and that most issuers' credit metrics are appropriately positioned for the downturn. The only sub-sectors with a stable outlook both from a credit and market perspective are aerospace & defence and diversified manufacturing.
Fitch also notes that a number of non-sector-specific negative factors are putting downward pressure on ratings across the agency's EMEA industrials portfolio, such as refinancing risk and increasing environmental regulation. The latter is resulting in capex spend, especially in the auto sector. Reduced financial flexibility as a result of the global credit crunch is limiting funding options and raising costs, as well as making non-core asset disposals more difficult.
On the other hand, certain pressures are reducing. Lower energy and metals prices are positive for industrial consumers of these products, although negative for producers. In addition, shareholder-biased activity is being reduced, with an increasing number of companies announcing the end or suspension of share buy-back programmes. Overall, capital expenditure plans have been cut dramatically, by up to one third across the EMEA industrials rated universe. This will support credit profiles in the short-term but may undermine industrial companies' competitiveness if sustained.
