Codelco Faces Credit Downgrade as Debt Mounts Amid Chinese Slowdown

Moody’s Ratings downgraded Codelco’s credit rating from Baa1 to Baa2 yesterday, citing production challenges, high costs, and substantial capital investment needs.

The Chilean state-owned copper giant now sits just two notches above junk status as it navigates uncertain commodity markets and growing trade tensions.

The downgrade affects Codelco’s euro-denominated medium-term senior unsecured bonds and global senior unsecured bonds. Moody’s also lowered the company’s Baseline Credit Assessment from Ba2 to Ba3 while changing the outlook from negative to stable.

Codelco’s financial situation continues to deteriorate despite slight improvements in credit indicators during 2024 and early 2025. The company’s total debt reached $23.7 billion by March 2025, with approximately $21.2 billion in cross-border bonds.

Nearly $400 million of this debt is set to mature later this year. The world’s largest copper producer posted a 53% year-over-year decline in pre-tax profits to $213 million during Q1 2025.

This profit slump occurred despite a marginal 0.3% production increase to 296,000 metric tons, highlighting severe margin compression from operational disruptions and rising costs.

A nationwide blackout in February 2025 reduced refined copper output by approximately 10,000 tons. The company also faces mounting maintenance and equipment leasing expenses that continue to erode profitability.

Despite these challenges, Codelco plans to ramp up investments with approximately $6 billion in capital expenditure for 2025. This investment forms part of a broader $35 billion plan over the next decade aimed at boosting production and reviving structural projects.

Moody’s emphasized that high capital expenditure will lead to increased debt levels and persistent leverage exceeding 5x until 2027. The agency sees limited room for debt reduction as Codelco continues to generate negative free cash flow.

The downgrade comes amid growing uncertainty in commodity markets, with widespread trade tensions affecting global business confidence. A potential slowdown in China would severely impact commodity demand, particularly affecting copper markets.

Codelco targets increased copper production for 2025, aiming to exceed this year’s 1.325 to 1.352 million tons. The company’s ability to navigate these financial challenges while executing its ambitious investment plans remains crucial for its future trajectory.