Glencore's credit ratings outlook changed to 'negative' by Moody's

Moody's has affirmed Glencore’s Baa2/P-2 credit rating, but changed the outlook to ‘negative’ from ‘stable.

Earlier this week, Glencore announced a $10.2bn debt reduction initiative due for execution by the end of 2016. Notwithstanding the natural resources company’s broad capabilities to take strengthening measures, Moody's has changed its outlook to “reflect the scope for a prolonged difficult market that may cause a slower recovery” in Glencore's financial profile.

The ratings agency said a prolonged decline in copper prices could be of particular concern. “More so if copper prices were to decline to below $2.2/lb on a prolonged basis from our current copper price assumption of $2.35/lb for 2016,” the agency said.

Moody’s acknowledged the debt reduction measures planned by Glencore will help strengthen and stabilise its credit profile when completed. “However, their scale reflects not just the challenges of the current commodity market, but also the growing possibility of a prolonged weaker pricing environment.”

On 28 August, Moody's revised downwards its forecast for GDP growth in G20 economies, reflecting the impact of a more marked slowdown in China and more prolonged negative effects from low commodity prices, with slower growth in China making a significant rebound in commodity prices in the near term "unlikely."