Moody’s upgrades outlook on Australia’s BlueScope Steel to positive

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The upgrade reflected expectation of a strengthening in BlueScope’s financial profile, which has undergone significant improvement in the last 12-to-18 months, Moody’s said in a report on Monday September 22.

“We expect BlueScope’s credit metrics to continue strengthening to a level that could signal an upward rating movement in the next 12-18 months”, Matthew Moore, a Moody’s vp senior analyst, said.

“This assumes that the steel industry will not face any material pressures beyond our current expectations, and that BlueScope will continue to benefit from low raw material costs, relative to the price of its finished products,” he added.

The Coated and Industrial Products division (CIPA) was a large factor in the improving results and the company’s ability to sustain and build on improvements in this division will be a critical factor in maintaining positive momentum, the rating agency said.

Improvements in CIPA in large part reflected the improvement in the percentage of sales in the higher margin domestic market and improving product mix. Domestic sales represented around 76% or 1.9 million tonnes of CIPA’s total sales.

Improvements, in profitability also reflected the solid expected contributions from the company’s New Zealand and US operations, it added.

BlueScope’s profitability is expected to continue rising in 2015, Moody’s said. However, a persistent weak performance in the Building Components & Distribution Australia division, combined with tougher conditions for segments of Bluescope’s Global Building Solutions and Building Products divisions could challenge the company’s ability to strengthen its financial profile relative to its expectation.

“BlueScope’s ratings continue to reflect the company’s strong market position and branding power in Australia, geographic diversification, and the steps taken by BlueScope to strengthen its business profile by focusing on midstream and downstream products,” Moore said.

BlueScope’s underlying earnings more than trebled year-on-year in the in the six months to June 30. Earnings before interest and taxes (EBIT) totalled A$249.7 million ($222.2 million), up from A$74.1 million ($65.9 million) a year earlier.