By Humeyra Pamuk
LONDON (Reuters) – Rating agency Moody’s Investors Service expects a stable year in the credit ratings of steel companies as demand bounces back, but rising prices of steel-making raw materials pose a key risk.
"If raw material prices are going up but steel prices are not, that would squeeze the margins," Matthias Hellstern, senior credit officer at Moody’s said in an interview.
"What we see now is a 20 percent rise in the iron ore spot prices, but steel prices hasn’t gone up by as much. If this continues, then I think at least non-integrated steel producers would have an issue," he said.
Spot iron ore prices have been rallying over the past month, with iron ore fines delivered in China recently rising to around $135 a tonne from $111 a tonne in mid-December, bringing the total gains to 120 percent since November 2008.
Moody’s downgraded the credit ratings of steel giants like ArcelorMittal, Thyssenkrupp and Russia’s Severstal in 2009, when the steel industry suffered from one of the worst downturns in its history.
Hellstern said ArcelorMittal, the world’s largest steelmaker, was among the fairly self-sufficient companies in terms of iron ore supply, but still it was dependant on external purchases.
"But they (Mittal) would be less affected by increasing iron ore prices compared with Thyssenkrupp, Corus and Salzgitter," Hellstern said. Anglo-Dutch Corus is owned by India’s Tata Steel.
On Thursday, a 49 percent jump in the iron ore output of the world’s second biggest producer Rio Tinto reflected robust demand from Chinese steelmakers, which could boost the case for a meaty price hike in this year’s iron ore pricing talks.
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