Standard & Poor's Credit Analyst Maria Shmaruk said S&P's overall view of the U.S. metals and mining sector is fairly bleak because of the continuing global recession. This particularly holds true for aluminum and steel producers and distributors.

‘Domestic demand for most metals remains at very low levels, S&P noted. Although conditions have not worsened, several companies have revised earnings guidance downward for the first quarter and have been, at best, noncommittal regarding prospects for the next few quarters, and the entire supply chain continues to manage for cash, reducing inventory, orders, and production levels.

Of the 43 publicly rated U.S. metals and mining companies, only one has a positive outlook and none are on CreditWatch with positive implications. Two of the companies filed for Chapter 11 bankruptcy protection.

The credit ratings agency said it has made 11 downgrades since the end of 2008, particularly for speculative-grade companies with weaker business positions, high levels of debt, or questionable liquidity...

Shmaruk said base metals prices have fallen substantially and are near long run averages because of low demand from weak world economies. However, she noted these prices have begun to stabilize, but at very low levels, often below the cost of production for a large swath of producers.

Aluminum, in particular, has been particularly hard hit. Prices have fallen from a high of more $1.40 per pound midyear to less than 70-cents per pound due to dramatically increased inventories. Although the industry has announced a significant number of smelter cutbacks, Shmaruk said, they have been insufficient thus far to offset the massive drop in demand and to eat into bloated inventory levels. Zinc and nickel remain weak, as well.

However, S&P has noted some bright spots including the price of gold, which has averaged more than $900 per ounce so far this year.

Shmaruk noted copper prices have registered meaningful price improvement because of increased China copper buying. But copper prices, which are currently above $2 per pound, are still nearly 50% off last year's peak of just above $4, albeit off the low point of about $1.30 per pound, she said. Still western end market demand is very weak and prices could slip from these higher levels.