El Niño: what credit investors need to know

A strengthening El Niño cycle could create gradual but material credit pressure through disrupted production, higher input costs and resilience spending.

• The cycle has been underway since June and its Southern Oscillation Index, Multivariate ENSO Index and Niño 3.4 sea-surface temperatures resemble the record 1997-98 and 2015-16 events.
• Those earlier events were estimated to cost the global economy $5.7 trillion and $4.1 trillion, with effects lasting for years.
• The United Nations and World Meteorological Organization have warned of increased flooding, drought and extreme heat across several regions through 2027.
• Agriculture faces crop disruption and higher prices for coffee, cocoa, sugar, grains and vegetable oils, with downstream effects on food service, retail and packaged food credits.
• Mining operations and selected utilities are exposed to physical disruption and hydropower shortages in Chile, Zambia, Indonesia and other markets, while insurers and transport networks face regional claims and supply-chain risks.

Takeaway: Credit investors should assess issuers individually, focusing on supply chains tied to hydro-dependent grids, exposure to Latin America and Southeast Asia, pricing power and the Panama Canal as an early signal of wider commodity disruption.