'Several years' of iron ore bear market behind Rio downgrade

Rio Tinto, the world's number two miner in terms of revenues, suffered the same fate as many of its peers on Wednesday with a downgrade by Moody's Investor Services.

The credit ratings agency  downgraded the senior unsecured ratings of Melbourne-based Rio and its subsidiaries one notch from to Baa1 from A3 with a negative outlook.

Moody's said the downgrade reflects its view "that there has been a fundamental downward shift in the mining sector with the downturn being deeper and prospects for a recovery extended, resulting in increased credit risk and weaker metrics" for the Anglo-Australian giant and the mining sector as a whole:

"The slowing economic growth rates in China materially impact the demand for base metals while the reducing steel production rates impact demand for iron ore and metallurgical coal – leading to lower prices. Supply imbalances, particularly in iron ore, the major earnings and cash flow driver for Rio Tinto, will maintain pressure on prices for several years.

"While lower oil prices, lower freight costs, and currency depreciation contribute to reduced costs, the drop in prices has and will continue to significantly impact performance. In addition, the strong US dollar is a further factor contributing to weakening demand and driving prices lower since most metals are traded in dollars."