Russia's steel producers continue to face difficulties due to mounting debt in a number of recent transactions on the intake combined with lack of liquidity that can undermine the overall profitability of the continuing industrial activity within the country, the report said the rating agency Moody s Investors Service.
Over the past few years, Russia's steel sector has been involved in the process of international consolidation of the industry, participating in transactions involving the acquisition of new assets, which contributed to the growth of scale and geographic diversification of Russia's companies, - said Moody s.
However, the subsequent increase in debt, as well as non-uniform quality of assets, especially foreign ones, have a negative impact on the performance of many companies, undermining their profitability.
Many players have undertaken a very ambitious commitments, thus endangering the ratio of assets and liabilities - especially with the decline of funding sources on the background of global recession - and increased pressure on liquidity - explains the report's author Larissa Loznova, vice president and Senior Analyst Corporate Finance Group agency Moody s. - Due to the continued passivity of the steel market agency Moody s expects that the profitability of Russia's manufacturers remain low, at least until the end of 2009, and the possible revival of the sector will only last for 2010.
agency Moody s recognizes that a positive factor for Russia's steel companies was the high level of self-sufficiency in raw materials against the backdrop of rising prices for coal and iron ore in 2008, which allowed them to remain relatively competitive despite a sharp drop in the value of steel in the fourth quarter 2008.
Moreover, since the first quarter 2009 level of capacity utilization in Russia's steel mills was 80-90%, and by the beginning of the third quarter, close to 100%. This became possible mainly due to significant growth in exports to Southeast Asia, the Middle East and Turkey.
This Moody s believes that the future impact of these economic benefits will deteriorate to the extent possible to reduce the prices of raw materials on world markets and further anti-dumping measures in several countries.
The current pressure on the ratings is the result, primarily, international operations, Russia's steel producers, but the income from production activities in the domestic market can ease the pressure, - says LA Loznova. - However, if the profitability of domestic production will fall in the absence of recovery world markets, and companies will not be able to refinance the debt in a timely manner as it approaches its maturity date, the negative pressure on the ratings of Russia's steel producers is likely to worsen.
No ratings Moody s assigned 5 Russia's steel companies, including OAO Magnitogorsk Iron and Steel Works (RTS: MAGN), OAO Novolipetsk Steel (RTS: NLMK) and OAO Severstal (RTS: CHMF) . During the past 12 months, credit rating agency has taken a number of negative rating actions on these companies, though in most cases, ratings were lowered to only one division of the rating scale. Forecast of development of the sector - a negative.
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