China Steel enjoys rating upgrade

Taiwan Ratings Corp (中華信評) yesterday upgraded its long-term credit rating on China Steel Corp (中鋼) from "twAA+" to "twAAA," the ratings agency said in a statement, citing the company's financial strength.

"The rating upgrade is based on China Steel's very strong financial profile, which is underpinned by robust cash-flow generation, continuously declining leverage and ample liquidity," Taiwan Ratings, a local arm of Standard & Poor's, said in the statement.

Taiwan Ratings, which predicts a stable outlook for the nation's largest steelmaker, also affirmed its "twA-1" short-term rating for China Steel.

"The ratings also reflect the company's dominant position in Taiwan's steel industry and its low-cost competitiveness," the statement said.

China Steel, based in Kaohsiung, produced and sold more than 10 million tonnes of steel products and commanded more than 50 percent of the domestic market for most steel products.

The company had cash and short-term investments of about NT$50 billion (US$1.5 billion) compared with total debt of NT$24 billion as of June 30, Taiwan Ratings said.

On the Taiwan Stock Exchange, China Steel shares rose 0.8 percent to NT$36.80 on news that Asia spot steel prices may peak in the first half of next year because of continued demand.

Small rival Chun Yuan Steel Industry Co (春源) added 1.7 percent to NT$24.70.

Strong demand from China and rising costs of shipping and coal are pushing steel prices higher, a Chinese-language newspaper reported yesterday. The paper said that hoarding by distributors may also be behind rising steel prices in Taiwan.

The global steel industry, which is estimated to churn out around 800 million tonnes per year, has steadily recovered from the severe downturn of 2001-2002.

But Taiwan Ratings warned that the global steel-industry cycle is inherently volatile, adding that China Steel's operating performance remains linked to movement in international steel prices.

China Steel in August posted a 37 percent gain in second-quarter net income because of higher steel prices.

At that time, the steelmaker said it was increasing prices on seven products in the fourth quarter, citing higher global prices and expanding domestic demand.

The company lifted prices every quarter since mid-2002 as strong demand from China drove up the price of the metal. More than a third of the company's exports go to China.

Amid a still favorable price environment, China Steel forecasts NT$160 billion in revenue this year, up 24 percent from a year ago, and NT$56.5 billion in pretax income, up 42 percent year-on-year.