International credit rating agency Moody's has announced that it has downgraded the global steelmaker ArcelorMittal's rating to Ba2 from Ba1 and the outlook is negative. The downgrade reflects the company’s weaker operating performance since the beginning of 2015 as a result of falling steel prices and a material decrease in EBITDA from its mining operations, Moody’s noted. The rating agency predicts that, while the company has improved its steel margin in Europe, its EBITDA will remain weak for the rest of the current year, with little prospects of recovery in the short term to the levels required for a Ba1 rating.
Moody's downgrade also reflects the current recession in ArcelorMittal's Brazilian market, which has depressed domestic steel demand, and the adverse impact on Brazilian margins of the shift of its product mix toward more semi-finished products to maintain a higher capacity utilization rate.
Moody's said that it continues to see as risks the pricing environment for steel products in Europe, the high level of competition from cheaper imported products coming into Europe and the US from Asia and Russia, and the weak GDP growth prospects in Brazil for next year. In addition, Moody's does not expect iron ore prices to increase over the next 12 months. Under these circumstances, the company's steel profitability will remain low next year. However, the rating agency expects that ArcelorMittal will remain free cash flow positive.