1 in 6 Asia-Pacific firms faces credit pressure from Iran war energy shock, S&P says
Higher energy prices ratchet up pressure on manufacturing businesses to maintain their profit margins amid rising raw material costs
Companies in the fields of downstream oil and gas, aviation, automotive, engineering and construction, and building materials would bear the brunt of the pain brought on by the war that has already sent crude prices up more than 30 per cent since the end of February.
“Asia-Pacific companies with limited financial buffer against supply disruption and/or higher energy and raw material costs could see credit deterioration,” S&P Global analyst Simon Wong said in a research note on Thursday. “Energy-intensive industries or those already facing structural challenges, such as excess capacity and intense competition, are inevitably vulnerable to a prolonged Middle East conflict.”
The analysis reflects heightened fears about worsening performances of companies in industries vital for regional and global economies.
The proportion of companies facing credit downgrade-risk is 9 per cent under S&P Global’s base case scenario, while a prolonged conflict and energy shock could propel it to 15 per cent.
Typically, higher energy prices ratchet up pressure on manufacturing businesses to maintain their profit margins amid rising raw material costs.
Supply disruptions could be detrimental to some businesses as they could face risks of production halts.