By S&P Global Ratings - May Zhong, Ellen Y LI, JunHong Park, Hiroyuki Nishikawa, Vishal Kulkarni | 14 June, 2017
According to a recent research by S&P Global Ratings, Asia-Pacific steel producers have been tackling their debt levels and improved profitability and cash flows. The region has seen a recovery in steel prices in the last 12 months as well as lower production costs, mostly due to restructuring efforts by steelmakers. As a result, S&P Global Ratings has taken a number of positive rating actions on steel companies in Asia-Pacific since late 2016.
Overall, S&P Global Ratings believe credit conditions in the sector have stabilized. Although steel prices and spreads are likely to remain volatile, prices are not expected to drop to 2015 levels for a prolonged period. China's supply-side reforms, if sustainable, should alleviate overcapacity in the region. Furthermore, the steel companies which were rated, generally have large exposure to high value-added products, which have lower price volatility than commoditized steel. It is expected that capital expenditure (capex) for the rated steel producers has peaked, which should allow them to generate free positive cash flows. However, some headwinds remain, such as the potential for a renewed spike in the cost of raw materials or a slump in demand due to weakness in downstream sectors.
Gain strategic insights into the Asia-Pacific steel sector outlook:
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