International credit ratings agency Fitch Ratings has revised its outlook for Ukrainian mining and steel producing group Metinvest to negative from stable and has affirmed the company’s BB- rating.
Metinvest’s rating reflects its weak financial position at the beginning of the coronavirus pandemic. It also takes into account the management’s initiatives to reduce operating costs. However, if it generates free cash flow and reduces its debt over the next years, the company’s financial profile could be supported, as SteelOrbis understands. If the recovery of the steel markets take longer than in Fitch’s forecast, the current measures may not be sufficient.
Steel consumption is expected to contract this year by high single-digit percentage terms globally. The coronavirus restrictions have impacted manufacturing activity more extensively than construction, weakening flat steel demand more than demand for longs. Fitch assumes that the steel industry, excluding China, will only recover to pre-coronavirus level towards 2022.
“Metinvest had a solid first quarter in the steel division, but fundamentally weaker markets in the second quarter led the company to defer the restart of two furnaces for a month. Otherwise we expect Covid-19 to impact earnings mostly through price risk rather than volume risk,” said Fitch.
