The Economy

Several U.S. Sectors at Risk From China Slowdown

China accounted for about half of global consumption of key base metals in 2014, suggesting significant risk for the industry, says Moody's.
Matthew HellerSeptember 23, 2015

U.S. companies in the metals and mining, oil and gas, chemical, steel, auto manufacturing, and gambling sectors are the most vulnerable to the economic slowdown in China, according to Moody’s Investors Service.

China accounted for about half of global consumption of key base metals in 2014, suggesting significant risk for the industry amid weak Chinese demand, the ratings agency said in a report published Tuesday.

Similarly, weak demand in China could drag down volumes, prices, and margins in the oil and gas sector. As well, a steeper-than-expected slowdown in Chinese gross domestic product growth could delay improvement in the credit profiles of major U.S. auto manufacturers.

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GM’s China business accounted for roughly 22% of earnings before interest and tax in 2014 and Ford Motor reported contributions of $1.3 billion from its Chinese joint venture, accounting for 20.7% of its pretax profit last year.

“The sectors most at risk have either the highest proportion of revenues generated in China or a high level of indirect exposure,” Tom Marshella, a Moody’s managing director, said in a news release. “The metals and mining sector, for instance, is directly exposed in terms of both export volumes and the knock-on effect of lower prices, while the oil and gas sector is vulnerable to the indirect impact of Chinese demand on prices.”

Moody’s also predicts that Macau’s gaming revenue will “remain under considerable pressure through the end of 2016 given current market volatility and other challenges,” potentially affecting the revenues of three gaming companies — Wynn Resorts, Las Vegas Sands, and MGM Resorts International.

The report says semiconductors, aerospace, auto parts, consumer products, drug and medical devices, and manufacturing sectors generally fall into the modest-exposure category, although a few companies in these sectors have significant presence in China.

On the technology side, most North American companies have a limited presence in China, Moody’s said, but “the slowing Chinese economy stands to take a bite out of Apple’s shine.” Greater China (which includes Hong Kong and Taiwan) is now Apple’s second largest market behind the Americas and its primary source of revenue growth.

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