International credit rating agency Fitch Ratings has announced that it has revised the outlook of India-based Tata Steel Limited and Tata Steel UK Holdings Limited from stable to negative, affirming the credit rating at 'BB+'.
Fitch stated that the downward revision in the outlook is due to profitability pressures expected to continue for both companies given the challenging short-term outlook for the global steel market.
According to the agency, Tata Steel UK's profitability will remain volatile due to fluctuations in raw material prices and the prevailing weakness of the steel markets in Europe, despite the various initiatives taken by the company such as improving operational efficiencies, upgrading facilities and technology and rationalizing capacities, focusing on a higher value-added product mix and improving supply chain management to improve its profitability.
Fitch expects steel demand in India to be impacted in the near term due to the slowing demand growth in various end-user industries, adding that, while Tata Steel's Indian operations will continue to benefit from raw material integration, any significant and sustained drop in steel prices may have a negative impact on the consolidated performance.