International credit rating agency Standard and Poor's has indicated that the 'B' rating on Turkish integrated steelmaker Eregli Demir ve Celik Fabrikalari reflects the agency's view of the company's weak business risk profile and aggressive financial risk profile.
According to S&P's statement, rating constraints include the highly cyclical nature of steel demand, the heightened risk of flat steel oversupply in Turkey and Erdemir's lack of vertical integration, which exposes it to volatile imported iron ore and coking coal prices and competition from Russian and Ukrainian steel.
S&P expects conditions in Turkey's steel industry to deteriorate significantly in 2012 compared to the strong 2011 performance due to increased margin pressure caused by Turkey's real economic growth slowing to about 2% to 4% in 2012 to 2014 along with lower demand in European export markets.
The rating agency said that it could revise the outlook or lower the rating if Erdemir's EBITDA margins do not recover substantially compared to the first quarter of 2012 during the next few quarters, adding that the rating could also be lowered in case of a steep drop in the Turkish lira, refinancing issues or liquidity pressure. However, the rating is unlikely to be raised in the medium term. To raise the rating, it needs to observe successful export strategies to offset increased flat and other steel capacity in the market.
Source - steelorbis.com