Global ratings agency Fitch has said that credit ratings for Brazilian steel companies are expected to remain at the investment grade level despite unprecedented levels of imported steel that are eroding profit margins.
In a report entitled ‘Brazilian Steel Margins Under Pressure: Long-Term Outlook Supports Investment-Grade Ratings', Fitch said Brazilian steel companies have historically faced various degrees of tariffs and quotas as they sought to export their products globally.
Fitch pointed out that it expects the Brazilian government to respond in kind with a degree of protection to preserve the vibrancy of its domestic steel industry. "While the companies' profit margins are not expected to return to historical levels in the near- to medium-term, it is unlikely that the companies' strong capital structures will deteriorate to the non-investment grade rating category," Fitch said.
The credit ratings company expects the margins to rebound to historical levels over the long-term due to the companies' growing diversification into iron ore. "Continued strong demand for steel within Brazil due to strong GDP growth and major investments in infrastructure will also bode well for the companies' long-term outlook," Fitch indicated.
Fitch currently rates each of the following Brazilian steel companies ‘BBB-' with a stable outlook: Companhia Siderurgica Nacional, Gerdau S.A. and Usinas Siderurgicas de Minas Gerais S.A.