International credit rating agency Standard & Poor's has announced that it has raised the long-term corporate credit rating of Turkish steelmaker Eregli Demir ve Celik Fabrikalari T.A.S. (Erdemir) to 'B+' from 'B', with the outlook being stable.
S&P said that the upgrade reflects Erdemir's strong operating performance in the first quarter of 2013, adding that Erdemir is benefitting from the Turkish flat steel industry's supportive supply and demand balance, high capacity utilization rates, and its leading position in the domestic market in a globally challenged steel industry environment.
According to S&P, Erdemir's stronger-than-expected first quarter performance was prompted by its marketing strategy and the flat steel deficit in the Turkish market, coupled with the drop in raw material prices. Turkish flat steel production covers approximately 60-70 percent of domestic consumption, while the rest is imported. Erdemir produces 70 percent of Turkey's flat steel. In addition, based on its assumption of four percent GDP growth in Turkey in 2013, the rating agency expects better steel demand growth in the country than in Europe, where a 0.5 percent GDP decline is anticipated.
On the other hand, the credit rating agency see risks that the supply and demand balance in the flat steel industry in Turkey may become less favorable, given the existing surplus capacity from electric arc furnaces and the risk of higher imports. While S&P points out that Erdemir has higher utilization rates than its EAF-based peers in Turkey and many other
European competitors, Erdemir's lack of integration into raw materials is considered as a comparative weakness.
As SteelOrbis previously reported, in the first quarter this year Erdemir's net profit amounted to TRY 228.25 million ($118.8 million), up 84.14 percent year on year, while its operating income was TRY 320.07 million ($166.6 million), compared to TRY 118.81 million in the first quarter of the previous year.
