International credit ratings agency Moody's has announced that it has revised South Korea-based steelmaker POSCO's outlook to negative (Baa2) from stable. The downgrade reflects POSCO's weaker-than-expected earnings in 2015 and the increasing likelihood that POSCO's financial profile will remain weak for its Baa2 rating over the next 12-18 months, as challenging conditions in the Asian steel industry should continue to pressure its earnings.
Moody's stated that POSCO reported a net loss of KRW 96 billion in 2015, for the first time in its history. The loss was mainly a result of currency losses, write-downs of its mine investments driven by lowered iron ore and coking coal prices, and provisions related to a lawsuit.
Moody's expects POSCO's operating income to decrease further in 2016, because the lingering overcapacity in China and South Korea will likely continue to pressure its steel earnings; and POSCO's subsidiary Daewoo International Corp's natural gas exploration & development business will be negatively affected by the lower crude oil prices. POSCO's efforts to increase value-added products and restructure its loss-making subsidiaries will only partly offset these negative drivers.