International credit ratings agency Standard & Poor's (S&P) has announced its revision of South Korean steelmaker POSCO's outlook from negative to stable, affirming the 'BBB+' long-term corporate credit rate.
S&P said that lower iron ore prices and an improved portfolio of steel products are likely to help stabilize POSCO's operating performance in 2015 and 2016, though no significant improvement in fundamental conditions for the steel industry is expected as China continues to face oversupply, which soaring steel exports demonstrate.
According to S&P, iron prices are likely to remain lower than previously expected, on account of a sizable increase in supply by major players and slower growth in demand from China. The rating agency believes that lower iron ore prices will likely support stable profitability in POSCO's steel business because average selling prices will not decline as much, thanks to a continuing rise in the company's share of revenues from high-value-added products, which increased to 36 percent of total sales volume in the first quarter of 2015 from 31 percent in the first quarter of 2013.
"The stable outlook reflects our view that POSCO is likely to maintain strong competitiveness on cost and an improved product portfolio, which will allow it to weather weak fundamental conditions for the steel industry over the next 24 months. The outlook also reflects our view that the company is likely to maintain low capital investment and not make large acquisitions, resulting in positive free operating cash flow in the period," S&P said.