Moody's - APAC steelmakers’ profitability takes a dive on coronavirus-led demand destruction

Moody's

Wed, Jul 29, 2020, 12:10 AM23 min read

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<!DOCTYPE html> <html lang="" xml:lang=""> <head> <title>/nwsys/www/images/PBC_1239361</title> <meta http-equiv="Content-Type" content="text/html; charset=UTF-8"/> <meta name="generator" content="pdftohtml 0.36"/> <meta name="date" content="2020-07-28T21:50:15+00:00"/> <style type="text/css">  </style> </head> <body bgcolor="#A0A0A0" vlink="blue" link="blue">  <style type="text/css">  </style> <div id="page1-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PBC_1239361001.png" alt="background image"/> Research Announcement:  Moody's - APAC steelmakers’ profitability takes a dive on coronavirus-led demand destruction Singapore, July 29, 2020 -- » Profitability set to drop 15% in the year to March 2021, following a 30% drop the previous year » Sales volumes will contract for the first time since 2015 Moody’s Investors Service says in a new report that the coronavirus-induced demand shock and an inability to pass on elevated costs to customers will severely hit the profitability of Asia Pacific steelmakers over the year to March 2021. “Unlike previous downturns that were prompted by supply gluts linked to large capacity increases, the coronavirus-led downturn has caused demand destruction across major steel-user industries,” says Laura Acres, a Managing Director in Moody's Corporate Finance Group. “We expect aggregate EBITDA-per-ton profitability of the nine rated Asia Pacific steelmakers will decline 15% in the 12 months to March 2021 after falling 30% a year earlier, underpinning our continued negative outlook for the sector,” adds Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer. Prices of iron ore, the main steelmaking material, will stay high over the next 12 months, as rising coronavirus infections in leading iron-ore producer Brazil (Ba2 stable) signal potential supply disruptions. Iron ore is now trading at 3.0x the level during the last downturn in January 2016. Meanwhile, plummeting automaker demand and weakness in the construction, infrastructure and shipbuilding sectors will result in sales volumes contracting for the first time since 2015. Sales volumes will fall by mid-single digits in Korea (Aa2 stable) and Australia (Aaa stable), high single- digits in India (Baa3 negative) and by a midteen percentage in Japan (A1 stable). China’s (A1 stable) demand, however, will fall only marginally given government support measures for infrastructure construction. The impact of the downturn will vary by steelmaker, with China Baowu Steel Goup Corporation Limited (A3 stable), POSCO (Baa1 stable) and BlueScope Steel Limited (Baa3 stable) benefiting from strong financial profiles and sizeable cash buffers. The three are also industry leaders in their home markets. These strengths, reflected in their stable outlooks amid a broader negative industry outlook, signal their ability to cope with the challenges. Subscribers can access the report “Steel - Asia Pacific: Sharp profitability decline on virus-wrought demand destruction keeps outlook negative” at:  http://www.moodys.com/ researchdocumentcontentpage.aspx?docid=PBC_1225464 NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York <PhoneNo>+1-212-553-0376</PhoneNo>, London <PhoneNo>+44-20-7772-5456</PhoneNo>, Tokyo <PhoneNo>+813-5408-4110</PhoneNo>, Hong Kong <PhoneNo>+852-3758-1350</PhoneNo>, Sydney <PhoneNo>+61-2-9270-8141</PhoneNo>, Mexico City <PhoneNo>001-888-779-5833</PhoneNo>, São Paulo <PhoneNo>0800-891-2518</PhoneNo>, or Buenos Aires <PhoneNo>0800-666-3506</PhoneNo>. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com. </div>  <style type="text/css">  </style> <div id="page2-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PBC_1239361002.png" alt="background image"/> This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on  www.moodys.com  for the most updated credit rating action information and rating history. Kaustubh Chaubal VP-Sr Credit Officer Corporate Finance Group Moody's Investors Service Singapore Pte. Ltd. JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Laura Acres MD-Regional Corporate Finance Corporate Finance Group Moody's Investors Service Singapore Pte. Ltd. JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Singapore Pte. Ltd. 50 Raffles Place #23-06 Singapore Land Tower Singapore, 048623 Singapore JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 © 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. 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To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S. To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, </div>  <style type="text/css">  </style> <div id="page4-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PBC_1239361004.png" alt="background image"/> arising from or in connection with the information contained herein or the use of or inability to use any such information. 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Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at  www.moodys.com  under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non- NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. </div> </body> </html>

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