ArcelorMittal drops deeper into junk territory with S&P
Reuters reported that ArcelorMittal, the world's largest steelmaker, dropped deeper into junk territory after Standard & Poor's downgraded the company's debt due to weaker iron ore prices.
The rating agency said it had lowered its long term credit rating on ArcelorMittal to BB from BB+ after revising its benchmark iron ore price assumptions for 2015 and 2016 to USD 65 from USD 85 per tonne, given a well supplied market.
S&P added that it estimated ArcelorMittal's core profit (EBITDA) in 2015 would be USD 7.0 billion to 7.3 billion, falling short of its previous expectation of USD 8 billion. It forecast that the ratio of funds from operations to debt was likely to be closer to 15% than 20% in the next two years.
The outlook is stable because we believe that ArcelorMittal has some flexibility and capacity to support the current rating. S&P cut ArcelorMittal's debt to junk status in August 2012, believing then the steel industry would weaken as the global economy, particularly in Europe, slowed down.
ArcelorMittal has steadily increased its own iron ore production in recent years, shipping almost 30 million tonnes in the first nine months of 2014.
S&P also said that it was cautious in its assumptions about average steel margins in the next two years, saying lower raw materials prices might not necessarily result in higher margins because the supply demand balance in the steel industry remained relatively weak.
ArcelorMittal said that it was disappointed by the downgrade, but said debt reduction and assets sales in recent years could be seen in recent earnings, which, together with recovering demand for steel, was improving profitability.
Source – Reuters