Mining for Success: Trends Shaping the Metals & Mining Industry

This blog is written and published by S&P Global Market Intelligence, a division independent from S&P Global Ratings. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.

The significance of the metals and mining industry extends far beyond mere extraction; it is a key driver of economic vitality and technological advancement, providing essential raw materials for various sectors, including construction, telecommunications, manufacturing, and green tech. But increasing demand for raw materials, diminishing supply and stricter environmental regulations often lead to higher operational costs and compliance complexities. Coupled with supply chain disruptions from geopolitical tensions and the lingering effects of the pandemic, these factors create an environment of heightened uncertainty, emphasizing the need for robust risk assessment to navigate potential vulnerabilities within the sector.  Credit risk presents significant risks as the ecosystem across customers and suppliers becomes more complex.

S&P Global Market Intelligence's RiskGauge™ score consolidates various risk dimensions—including fundamental, market-driven, socio-economic, and macroeconomic factors—into a probability of default score. This tool delivers comprehensive insight into credit health for millions of companies worldwide. Moreover, it is integrated into S&P Market Intelligence’s Early Warning System (EWS) which swiftly identifies emerging clusters of elevated credit risk for specific countries and industries, and provides proactive alerts for heightened credit risk at the corporate level.

To illustrate, Figure 1 below shows the weekly RiskGauge median probability of default of 5000+ public companies in the metals & mining sector for the past five years. Over the observed period, all regions exhibit varying trends, with APAC being the most volatile and LATAM the most stable, reflecting differing economic conditions and risk profiles across regions.

• APAC Volatility: The Asia-Pacific (APAC) region shows the highest probability of default levels, particularly peaking around early 2021. This suggests a greater sensitivity to economic changes, such as the COVID-19 pandemic’s impact on supply chains and labor availability, export bans on key minerals, and the volatility in commodity prices.
• LATAM Stability: Latin America (LATAM) consistently exhibits the lowest PD, indicating a more stable credit environment. This stability can be attributed to operational efficiency, infrastructure improvements, and favorable government policies.
• Moderate Trends in MEA, EU, and NA: The Middle East and Africa (MEA), Europe (EU), and North America (NA) regions demonstrate relatively stable PD levels with minor fluctuations, indicating a steadier credit risk landscape compared to APAC.

Figure 1: Quarterly RiskGauge median benchmarks of public companies in Metals & Mining Industry

Source: S&P Global Market Intelligence as of September 20, 2024. For illustrative purposes only.

Let’s concentrate on a specific company in the APAC region for the metals and mining sector, analyzing the daily output of the RiskGauge score and its application within an EWS framework. EWS employs a blend of dynamic risk thresholds and momentum indicators to identify critical signals of potential credit risk decline, ultimately leading to default, represented in an easy-to-understand traffic light color scale.^[1]

Millcon Steel Public Company Limited, established in 1998 in Thailand, manufactures and distributes steel products, including rebar and deformed bar.^[2] The company’s major business regions include Thailand and neighboring countries in the ASEAN region.

Figure 2 outlines the progression of the EWS signal for Milicon Steel from September 2021 to May 2024, as assessed through the RiskGauge model score. The EWS signal turned red from the second quarter of 2023 and until the default event in May 2024, reflecting notable volatility and a sharp increase in Probability of Default (PD) levels, 12 months prior to firm’s default. The company defaulted on its debt obligations primarily due to a substantial decline in revenue and profitability, exacerbated by ineffective debt management; operational costs rose significantly, further eroding profit margins and contributing to its financial distress. This financial turmoil is particularly pronounced as Millcon Steel is especially affected by APAC volatility, stemming from its reliance on regional demand, fluctuating raw material costs, and changing trade policies.

Figure 2: Historical Evolution of Credit Risk for Millcon Steel Company Private Limited

Source: S&P Global Market Intelligence as of September 20, 2024. For illustrative purposes only.

The EWS framework consistently generated signals throughout the analysis period, transitioning to red to signify an elevated risk of default. This underscores its efficacy in distinguishing authentic default risk from sporadic fluctuations in the RiskGauge score, whether upward or downward.

To learn more about RiskGauge and EWS, click here.

^{[1] For more details, please refer to the Early Warning Signals Framework 1.0 White Paper}

^{[2] Source: The S&P Capital IQ® Platform}