Moody’s Investor Service has cut the credit rating of commodities trading giant Glencore to the lowest investment grade possible. The credit rating for Glencore is now just one notch above junk status. Moody’s has said that the company should be able to maintain this rating, even if the conditions in the precious metals market do not improve in the foreseeable future.
Glencore now has a rating of BAA3 with a stable outlook. Moody’s says that it expects copper to trade at an average price of $2.15 per pound in 2016. This price is about the same as current values.
The lead analyst of Glencore for Moody’s Elena Nadtotchi said in a statement, “The downgrade reflects our expectations that the pricing environment in mining will remain unfavorable in 2016-17, making a return to the previous level of earnings unlikely. However, we believe that Glencore has the capacity to adjust its balance sheet to a reduced earnings level in order to maintain its investment grade ratings.”
Glencore is one of the world’s largest mining companies. The company has had a disastrous year, as falling commodity prices have sent their stock into a tailspin. Glencore is currently working to restructure its business in order to reduce its massive amounts of debt and cling to its investment grade rating.
Last week, Glencore stated that it has plans to reduce its level of debt to as low as $18 billion by the end of 2016. The company is also intending to sell more of its assets to raise capital. The stable outlook from Moody’s means that the rating service believes that the company can manage its high debt levels, despite its decline in earnings.
The trading division of Glencore will reportedly strongly contribute to the company’s profits and efforts to increase cash flow. However, the prices of commodities will continue to affect the credit outlook of the company.
Declining commodity prices have had a major impact on the global economy this year. In addition to the financial havoc that has occurred at Glencore, the entire economy of China has largely experienced a major economic slowdown.
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