November 22, 2008

Japanese steel industry outlook stable - Moody

Moody's Investors Services said that the outlook for the Japanese integrated steel industry is stable, based on its expectations for the industry's fundamental credit conditions over the next 12 to 18 months.

Moody's said that its view is based primarily on the industry's solid operating franchises, ongoing developments in technological strategies, and improved financial profiles. However, these are offset by uncertainty regarding both the surging cost of raw materials and potential investment opportunities.

Moody's said that “Successful management of product pricing, combined with extensive cost cutting programs, is likely to sustain fundamental profitability, although margins may be pressured.”

It also noted that free cash flow will be constrained by growing capital expenditures and business investments over the next few years, possibly resulting in higher debt.

Moody's said that an ever evolving global landscape the changing geographical structure of supply and demand, surging raw material costs, and industry consolidation will affect Japanese integrated steelmakers' strategies, leading in particular to increased investments.

In addition, Moody's expects the management teams of the rated companies to maintain conservative financial policies and properly manage their capital structures despite investment needs and shareholder return expectations.