Utilities and agriculture are among the most exposed sectors in Australia under El Nino conditions, Fitch Ratings has warned.

Last month, the Bureau of Meteorology said El Nino – an extended period of warmer than normal water in the central tropical Pacific – was active.

It could bring hotter and drier conditions that increase water stress, weaken agricultural output, raise peak electricity demand and heighten bushfire risk, although impacts vary by region.

Fitch warns utilities will be directly exposed. Drier conditions can reduce water storage levels and inflows, which may weaken revenue and increase water utilities’ operating expenditure through greater use of desalination and chemical treatment.

However, responses such as water restrictions and drought pricing will help support cash flow.

Hotter weather could also increase electricity demand, putting pressure on spot prices and grid stability while raising bushfire-related risks for transmission and distribution assets.

The ratings agency says energy retailers may experience short-term earnings volatility via higher spot prices and outages.

Fitch adds that regulatory frameworks will limit most of the credit impact through revenue cost recovery in subsequent years.

Agriculture has fewer protections against prolonged drought and is likely to be among the most affected sectors. Outputs such as wheat and barley could fall, pressuring food supply chains and increasing price volatility.

Fitch warns weaker planting activity could affect revenue for agrochemical producers, although demand for some drought management products could remain relatively stable.

Lower agricultural production could reduce export volumes, but ports and logistics operators are unlikely to suffer widespread disruption, with heat, bushfires and drought more likely to create localised rather than sector-wide impacts.

Some sectors would benefit from El Nino, Fitch notes. 

For mine operators, drier conditions lower the risk of weather disruptions and could lead to higher supply volumes. Hotter weather across Asia and lower hydropower availability could support seaborne thermal coal demand and lift prices, benefiting Australian exporters.

This would in turn pose energy transition challenges.

Higher electricity demand would reinforce the need for storage, firming capacity such as batteries, transmission investments and climate resilience.

Insurers could face bushfire-related claims, Fitch says, although credit effects will depend on losses from other natural perils such as flooding, along with reinsurance protection and the sector’s ability to reprice risk.