International ratings agency Moody's Investors Service has changed the outlook for the ratings of Turkey's integrated steelmaker Erdemir from negative to stable.
Moody's said that the change in outlook has been prompted by the strong improvement in Erdemir's performance which has allowed the credit metrics to strengthen against a backdrop of slow economic recovery. Moody's has also noted that the successful refinancing of a major part of its short-term debt into long-term committed debt has improved Erdemir's liquidity profile, though the latter remains relatively weak.
Erdemir's profitability has recovered in the last three quarters from the very weak results in 2009 and Moody's expects that the positive performance will continue, primarily driven by the strong economic growth of Turkey. This has led to a strong improvement in profitability and leverage.
According to the Moody's report, weighing negatively on Erdemir's rating is its relatively high dependency on iron ore and coking coal supply from third parties which could lead to a squeeze in margins if continued increases in raw materials cannot be passed on. Taking into account the commoditized nature of the steel industry, its volatility, current overcapacities in the mature markets and limited market power of steel producers, Moody's said that it would expect the performance of the company to continue and show some volatility.
Erdemir is the largest steel manufacturer in Turkey with a market share of around 25 percent. Erdemir produces both long steel as well as flat steel products which are sold to the domestic (70 percent of sales) and international (30 percent of sales) markets. The company operates two integrated steel plants, in Eregli and Iskenderun.