International credit rating agency Moody’s has announced that it has affirmed the credit rating of the Japanese steelmaker Nippon Steel & Sumitomo Metal Corp. (NSSMC) at Baa1, while changing its outlook to negative from stable.
"The change in outlook principally reflects the likelihood that NSC's financial profile will deteriorate over the next 12-18 months, as challenging conditions in both the Asian and Japanese domestic steel markets will pressure its earnings," stated Takashi Akimoto, a Moody's analyst.
The downgrade of outlook follows NSSMC’s announcement of its full-year guidance that its consolidated business profit will be JPY150 billion ($1.42 billion) for the financial year 2019-2020 ending March 31, 2020, down 55 percent from the previous year.
Market demand for the company’s core value-added flat steel products has moderated due to weakness in its end markets, represented by the auto sector. At the same time, the cost of its raw materials iron ore and coking coal prices have risen.
Moody’s said that the negative outlook indicates that the steelmaker’s ratings are unlikely to be upgraded. The outlook on ratings could return to stable if the company meaningfully improves its profitability and financial leverage through the steel business cycle, Moody’s indicated.
