S&P Global Ratings currently maintains 41 industry risk assessments based on the criteria in "Methodology: Industry Risk," published Nov. 19, 2013, on RatingsDirect (see the tables in the appendix).
Latest Industry Risk Actions
We revised the industry risk for the Oil & Gas exploration and production (E&P) industry to Moderately High (4) from Intermediate (3) in part because of the increased environmental threat posed by greenhouse gas emissions, evolving government policies and emission standards, and the rising role of renewables in the energy landscape supported by its cost-competitiveness. We believe the structural changes for fossil fuels increase product substitution and growth trend risks. Another driver behind the change is the heightened investor demands to focus on ESG, which may make future market access more challenging. We believe as clean energy becomes an increasing part of the energy landscape, it poses a medium- to longer-term threat to oil and natural gas demand growth--even if we think the energy transition will be spread over several decades. Moreover, average returns on capital for the industry have been declining over the past decade. This reflects both high historical development costs and generally lower and volatile prices, which we believe may persist.
- As a result, we have therefore revised the following "Competitive risk and growth" subfactors:
- "Risks in growth trends" to high risk from medium risk,
- "Risk of secular change and substitution of products, services, and technologies" to medium from low risk, and
- "Level and trend of industry profit margins" to high from medium risk.
As a result of these subfactor changes, the "Competitive risk and growth" assessment and "Industry risk assessment" were both revised to Moderately High (4) from Intermediate (3).
Some investment-grade companies will be placed on CreditWatch with negative implications, while others will have outlook revisions to negative from stable, given the revision in the industry risk assessment for the sector.
About Industry Risk Assessments
The risks entities face because of the industries in which they operate are critical factors in our analysis of their business risk profiles and our assignment of issuer credit ratings (see "Methodology: Industry Risk," published Nov. 19, 2013). The methodology distills this sectoral analysis into a single global industry risk assessment that reflects the risk and return potential for a company in the markets in which it participates. We have industry risk assessments on 38 nonfinancial corporate industries, all based on the criteria (see table 1). These assessments classify industries on a scale from very low risk to very high risk.
Our industry assessments are an important component of our corporate criteria (see "Corporate Methodology," published Nov. 19, 2013). The criteria organize the analytical process according to a common framework and articulate the steps in developing the stand-alone credit profile and issuer credit rating for a corporate entity.
The industry risk criteria are intended to help market participants better understand our approach to evaluating the risks that entities (nonfinancial corporate entities and U.S. public finance and international public finance enterprises) face in their respective industries. The criteria are also intended to enhance the comparability and transparency of ratings across sectors by comparing and scoring interindustry risk.
The industry risk assessment combines an industry's cyclicality assessment, using the stress scenarios in "Understanding S&P Global Ratings' Rating Definitions," published June 3, 2009, and our assessment of a sector's overall prospective competitive risk and growth environment. We combine these assessments to determine the global industry risk assessment.
Appendix
Table 1
| Industry Risk Assessments | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Industry name | --Cyclicality assessment-- | --Competitive risk and growth environment assessment-- | --Global industry risk assessment-- | |||||||||||
| Transportation cyclical | High risk | 5 | Moderately high risk | 4 | High risk | 5 | ||||||||
| Homebuilders and developers | High risk | 5 | Intermediate risk | 3 | Moderately high risk | 4 | ||||||||
| Metals and mining downstream | High risk | 5 | Intermediate risk | 3 | Moderately high risk | 4 | ||||||||
| Metals and mining upstream | High risk | 5 | Intermediate risk | 3 | Moderately high risk | 4 | ||||||||
| Auto OEM | High risk | 5 | Intermediate risk | 3 | Moderately high risk | 4 | ||||||||
| Auto suppliers | Moderately high risk | 4 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Commodity chemicals | Moderately high risk | 4 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Technology hardware and semiconductors | Moderately high risk | 4 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Oil and gas refining and marketing | Moderately high risk | 4 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Oil and gas integrated, exploration and production | Moderately high risk | 4 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Unregulated power and gas | Moderately high risk | 4 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Forest and paper products | Moderately high risk | 4 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Engineering and construction | Intermediate risk | 3 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Oil and gas drilling, equipment and services | Intermediate risk | 3 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Agribusiness and commodity foods | Moderately high risk | 4 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Building materials | Moderately high risk | 4 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Leisure and sports | Moderately high risk | 4 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Aerospace and defense | Moderately high risk | 4 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Capital goods | Intermediate risk | 3 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Consumer durables | Intermediate risk | 3 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Business and consumer services | Intermediate risk | 3 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Technology software and services | Intermediate risk | 3 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Containers and packaging | Intermediate risk | 3 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Media and entertainment | Intermediate risk | 3 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Retail and restaurants | Intermediate risk | 3 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Transportation leasing | Low risk | 2 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Telecommunications and cable | Low risk | 2 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Health care services | Low risk | 2 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Health care equipment | Low risk | 2 | Low risk | 2 | Low risk | 2 | ||||||||
| Transportation infrastructure | Low risk | 2 | Low risk | 2 | Low risk | 2 | ||||||||
| Midstream energy | Intermediate risk | 3 | Low risk | 2 | Low risk | 2 | ||||||||
| Real estate investment trusts (REITs) | Intermediate risk | 3 | Low risk | 2 | Low risk | 2 | ||||||||
| Railroads and package express | Intermediate risk | 3 | Low risk | 2 | Low risk | 2 | ||||||||
| Specialty chemicals | Intermediate risk | 3 | Low risk | 2 | Low risk | 2 | ||||||||
| Environmental services | Low risk | 2 | Low risk | 2 | Low risk | 2 | ||||||||
| Branded nondurables | Low risk | 2 | Low risk | 2 | Low risk | 2 | ||||||||
| Pharmaceuticals | Low risk | 2 | Low risk | 2 | Low risk | 2 | ||||||||
| Regulated utilities | Low risk | 2 | Very low risk | 1 | Very low risk | 1 | ||||||||
| Source: S&P Global Ratings. | ||||||||||||||
Table 2
| Industry Risk Assessments For Financial Services Sectors | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Industry name | --Cyclicality assessment-- | --Competitive risk and growth environment-- | --Global industry risk assessment-- | |||||||||||
| Asset managers | Intermediate risk | 3 | Intermediate risk | 3 | Intermediate risk | 3 | ||||||||
| Financial market infrastructure companies | Low risk | 2 | Low risk | 2 | Low risk | 2 | ||||||||
| Financial services finance companies | Moderately high risk | 4 | Moderately high risk | 4 | Moderately high risk | 4 | ||||||||
| Source: S&P Global Ratings. | ||||||||||||||
Table 3
| Competitive Risk And Growth Subfactors | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Industry name | Effectiveness of barriers to entry | Level and trend of industry profit margins | Risk of secular change and substitution of products, services, and technologies | Risk in growth trends | ||||||
| Transportation cyclical | High risk | High risk | Low risk | Medium risk | ||||||
| Homebuilders and developers | Medium risk | High risk | Medium risk | Medium risk | ||||||
| Metals and mining downstream | Medium risk | High risk | Low risk | Low risk | ||||||
| Metals and mining upstream | Medium risk | Medium risk | Low risk | Low risk | ||||||
| Auto OEM | Low risk | High risk | Low risk | Medium risk | ||||||
| Auto suppliers | Medium risk | High risk | Medium risk | High risk | ||||||
| Commodity chemicals | High risk | High risk | Medium risk | Medium risk | ||||||
| Technology hardware and semiconductors | Medium risk | High risk | High risk | Low risk | ||||||
| Oil and gas refining and marketing | Low risk | High risk | Medium risk | High risk | ||||||
| Oil and gas integrated, exploration and production | Medium risk | High risk | Medium risk | High risk | ||||||
| Unregulated power and gas | Medium risk | High risk | Low risk | High risk | ||||||
| Forest and paper products | Medium risk | High risk | Medium risk | High risk | ||||||
| Engineering and construction | High risk | High risk | Low risk | Medium risk | ||||||
| Oil and gas drilling, equipment and services | Medium risk | High risk | Medium risk | High risk | ||||||
| Agribusiness and commodity foods | Medium risk | High risk | Medium risk | Medium risk | ||||||
| Building materials | Low risk | Medium risk | Low risk | Medium risk | ||||||
| Leisure and sports | Medium risk | Medium risk | Medium risk | Medium risk | ||||||
| Aerospace and defense | Medium risk | Medium risk | Low risk | Medium risk | ||||||
| Capital goods | Medium risk | Medium risk | Low risk | Medium risk | ||||||
| Consumer durables | Medium risk | Medium risk | Low risk | Medium risk | ||||||
| Business and consumer services | Medium risk | Medium risk | Low risk | Medium risk | ||||||
| Technology software and services | Medium risk | Medium risk | Low risk | Low risk | ||||||
| Containers and packaging | Medium risk | Medium risk | Low risk | Medium risk | ||||||
| Media and entertainment | Medium risk | Medium risk | Medium risk | Medium risk | ||||||
| Retail and restaurants | Medium risk | High risk | Medium risk | Low risk | ||||||
| Transportation leasing | Medium risk | Low risk | Medium risk | Low risk | ||||||
| Telecommunications and cable | Low risk | Low risk | Medium risk | Medium risk | ||||||
| Health care services | Medium risk | Medium risk | Low risk | Low risk | ||||||
| Health care equipment | Low risk | Medium risk | Low risk | Low risk | ||||||
| Transportation infrastructure | Low risk | Low risk | Low risk | Medium risk | ||||||
| Midstream energy | Low risk | Low risk | Low risk | Medium risk | ||||||
| Real estate investment trusts (REITs) | Medium risk | Low risk | Low risk | Low risk | ||||||
| Railroads and package express | Low risk | Low risk | Medium risk | Low risk | ||||||
| Specialty chemicals | Low risk | Medium risk | Low risk | Low risk | ||||||
| Environmental services | Low risk | Low risk | Low risk | Medium risk | ||||||
| Branded nondurables | Medium risk | Low risk | Low risk | Low risk | ||||||
| Pharmaceuticals | Low risk | Low risk | Low risk | Medium risk | ||||||
| Regulated utilities | Low risk | Low risk | Low risk | Low risk | ||||||
| Source: S&P Global Ratings. | ||||||||||
Table 4
| Competitive Risk And Growth Subfactors For Financial Services Sectors | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Industry name | Effectiveness of barriers to entry | Level and trend of industry profit margins | Risk of secular change and substitution of products, services, and technologies | Risk in growth trends | ||||||
| Asset managers | Medium risk | Low risk | Medium risk | Low risk | ||||||
| Financial market infrastructure companies | Low risk | Medium risk | Low risk | Low risk | ||||||
| Financial services finance companies | High risk | Medium risk | Medium risk | High risk | ||||||
| Source: S&P Global Ratings. | ||||||||||
Related Criteria And Research
Related Criteria
- Methodology: Industry Risk, Nov. 19, 2013
- Corporate Methodology, Nov. 19, 2013
- Understanding S&P Global Ratings' Rating Definitions, June 3, 2009
Related Research
- Industry Risk Assessments Update: July 2020, July 14, 2020
- Industry Risk Assessments Update: May 2018, May 4, 2018
- Standard & Poor's Assigns Industry Risk Assessments To 38 Nonfinancial Corporate Industries, Nov. 20, 2013
This report does not constitute a rating action.
| Primary Credit Analyst: | Thomas A Watters, New York + 1 (212) 438 7818; thomas.watters@spglobal.com |
| Secondary Contacts: | Jeanne L Shoesmith, CFA, Chicago + 1 (312) 233 7026; jeanne.shoesmith@spglobal.com |
| Gregg Lemos-Stein, CFA, New York + 212438 1809; gregg.lemos-stein@spglobal.com | |
| Karl Nietvelt, Paris + 33 14 420 6751; karl.nietvelt@spglobal.com | |
| Additional Contact: | Industrial Ratings Europe; Corporate_Admin_London@spglobal.com |
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