On June 20, international credit ratings agency Moody's said it had downgraded major Japanese steel companies Nippon Steel and JFE Holdings on concerns over their profitability in the face of rising raw material prices.
Moody's Japan K.K., the Japanese unit of the US ratings firm, downgraded the senior unsecured debt ratings of Japan's biggest steelmaker Nippon Steel and JFE Holdings by one notch to A2 and A3 respectively, with a stable outlook.
Moody's said the downgrade was due to concerns that the companies will be unable to improve profitability and leverage "given rising raw material prices and the difficulty of passing on higher costs to customers".
Nippon Steel's new rating is sixth on a scale of 19, while JFE's is seventh. Moody's said the Japanese firms will take a hit in the current financial year to March 2012 because of the negative impact of the March 11 earthquake and tsunami on Japan's economy, despite an expected second half recovery. Domestic steel demand in the fiscal year will be sluggish as its major customers, such as the auto industry, have been badly affected by the aftermath of the earthquake, Moody's said. "Although demand in the construction sector will be strong - because of rebuilding - it may not fully offset the negative impact of other sectors on its profitability."
Tokyo-headquartered Nippon Steel Corporation produces high-quality steel for use in a variety of industries globally, with the automotive industry being a key customer. Tokyo-headquartered JFE Holdings, the world's fifth largest steelmaker, has several subsidiaries including JFE Engineering, JFE Steel and JFE Shoji.
Moody's said it will keep a close watch on the two companies' progress, and, once details have been clarified, will take them into account in its rating analysis of their business profiles, financial structures, and corporate governance.