Several steel majors saw rating changes from various firms in the week to Feb. 2, including Brazil's Cia. Siderúrgica Nacional, or CSN, which was upgraded Feb. 1 by both S&P Global Ratings and Moody's largely due to a debt refinancing deal that the steelmaker announced the same day.
S&P Global Ratings raised its rating for the company to CCC+ from CCC on the global scale and removed the company's ratings from CreditWatch with negative implications.
"The extended debt amortization profile, lower interest expense, due to the sharp decline of the base interest in Brazil in 2017, and absence of covenant breach risk following the presentation of the 2016 financial statements in late 2017 underpin our view of CSN's cash flow relief," S&P Global Ratings wrote.
The analysts noted that the CCC+ rating reflects the significant amount of debt coming due in 2019 and 2020, especially the US$750 million and US$1.2 billion senior unsecured notes, while the positive outlook means that S&P Global Ratings may upgrade CSN in the next 12 months if the company can capitalize on improved market conditions and manages to reduce short-term cash flow pressures.
Moody's also upgraded CSN's global-scale rating to B3 from Caa2, while changing the outlook on the ratings to stable from negative.
S&P Global Ratings also upgraded ArcelorMittal on Feb. 1 to BBB- with a stable outlook, after the steelmaker outlined plans to use excess free cash flow to reduce its net debt to US$6 billion, after slashing it by US$1 billion in 2017 to US$10.1 billion as of Dec. 31, 2017.
The rating agency expects ArcelorMittal's ratio of funds from operations to debt to rise to at least 30% in 2018 and 2019, from 27.2% at the end of 2017, and forecasts the company will have at least US$1.5 billion in cash flow available in 2018 after the year's CapEx and dividend payouts.
ArcelorMittal is expected to benefit from supportive conditions in its key markets in 2018. In addition, higher steel prices have absorbed the rising costs of raw materials such as coal and iron ore, while high margins in China will likely continue to underpin the global industry.
S&P Global Ratings also raised Ferrexpo Plc's long-term corporate credit rating from B- to B and affirmed its short-term corporate credit rating at B, according to a Jan. 30 note, reflecting the "greater clarity and comfort" gained on Ferrexpo's higher pellet premiums and earnings expectations for 2018.
Ferrexpo's ability to withstand a sovereign default and exchange control scenario was also highlighted, as well as healthy cash flow allowing the company to continue deleveraging and meet all of its debt repayment obligations from internal cash flows.
On the same day, Vertical Research Group initiated coverage on U.S. Steel Corp., tagging the company with a "sell" rating and a target price of US$25 per share.
According to analyst Gordon Johnson, investors are giving too much attention to current steel prices and the possibility of the U.S. government curbing steel imports, while overlooking market fundamentals, particularly in China, which are more important in forecasting near-term changes in steel prices.
BofA Merrill Lynch, meanwhile, downgraded AK Steel Holding Corp. by two notches to "underperform" from "buy" and lowered the target price for the company's stock to US$5.50 from US$8.00.
Analyst Timna Tanners said Jan. 31 that the downgrade resulted from AK Steel's lack of catalysts and disappointing first-quarter earnings guidance, comprising modestly higher prices and volumes. Tanners further noted that the company's commodity-neutral approach limits its ability to benefit from higher steel prices and that higher costs will continue to weigh down its operations in the first quarter.
BofA lowered its first-quarter earnings estimate for AK Steel from 29 cents to a loss of 12 cents per share.
On Jan. 29, Moody's raised the credit ratings of six Russian mining companies to Baa3 from Ba1 following a change in outlook on Russia's sovereign Ba1 rating to positive from stable. The companies are PJSC Novolipetsk Steel, PAO Severstal, PJSC Magnitogorsk Iron & Steel Works, PJSC Norilsk Nickel Co., PJSC Alrosa and PJSC PhosAgro.
Moody's based the upgrade to the mining companies on "particularly strong credit metrics with a substantial share of foreign currency revenue and strong liquidity profiles." This combination of factors makes these companies more resilient against domestic economic stresses.
The rating firm also boosted the outlook to positive from stable on all of the companies except fertilizer producer PhosAgro.
Metallurgical Corp. of China Ltd. also saw an upgrade during the week, after S&P Global Ratings raised the company's long-term corporate credit rating to BBB+ from BBB, with a stable outlook, on Jan. 29.
The upgrade reflects the stronger credit profile of the company's parent, Minmetals Group, and expectations that the company will continue its strong performance in the metals and mining sector, as well as in the metallurgical engineering and construction sector following the merger with China Metallurgical Group Corp.
On the other hand, S&P Global Ratings cut Noble Group Ltd.'s corporate credit ratings to CC from CCC-, with a negative outlook, following the company's announcement of a debt restructuring agreement.
The rating firm sees the debt deal as a distressed exchange because the noteholders will receive materially less than the par value of their notes. And the negative outlook reflects the likelihood that S&P Global Ratings will further downgrade Noble Group's ratings to D when the distressed exchange is completed.
Shifting away from bulk commodities, First Quantum Minerals Ltd. was downgraded Jan. 29 by Canaccord Genuity to "hold" from "buy" amid potential risks to the miner's three-year guidance.
The cut comes despite increased copper production in the fourth quarter of 2017, as analyst Dalton Baretto sees potential downside in the company's production guidance related to the complexity of its Cobre Panama copper operation in Panama, assuming that production from the property is included in the guidance.
Meanwhile, Laurentian Bank Securities initiated coverage on Detour Gold Corp. on Feb. 1, tagging the miner with a "buy" rating.
Analyst Barry Allan referred to 2017 as a "major milestone" for the company, citing lower financial obligations and good operations, with tangible proof of the cash flow potential of the Detour Lake gold mine in Ontario, which reached record output in the year.
Allan sees 2018 as another record year for output at Detour Lake and forecasts two pathways for Detour Gold: a business combination if its valuation level does not improve and incremental production growth through M&A if its valuation does improve.
Finally, Desjardins Securities started covering Troilus Gold Corp. on Feb. 2 and gave the company a "buy" rating, citing the potential of its Troilus gold project in Quebec to spark investor interest.
S&P Global Ratings and S&P Global Market Intelligence are both owned by S&P Global Inc.
