S&P Downgrades Nippon Steel

Concern over the firm's ability to pass on higher costs of raw materials

Due to concerns over Nippon Steel's profitability in the face of rising commodity prices, Ratings agency Standard & Poor's on June 22 said it had downgraded Japan's biggest steelmaker.

S&P cut Nippon Steel one notch from A- to BBB+, eighth on a scale of 22 with a stable outlook, on concerns over the firm's ability to pass on higher costs of raw materials.

"In fiscal 2010, Nippon Steel had to shoulder a net 200 billion yen (US$2.5 billion) increase in costs for raw materials that it was unable to pass on to customers," S&P said in a statement, noting the firm's operating margins were well below 2007 levels.

Iron ore and coking coal, the two main raw materials for steel production, have seen significant price rises in recent years in a market dominated by the three global mining giants, Anglo-Australian BHP Billiton, Rio Tinto and Brazil's Vale.

Tokyo-headquartered Nippon Steel Corp. produces high-quality steel for use in a variety of sectors globally, with the automotive industry being a key customer.

On June 20 Moody's Japan K.K., the Japanese unit of the U.S. ratings firm, downgraded Nippon Steel by one notch to A2 for the same reasons.

In February Nippon Steel and third-ranked rival Sumitomo Metal Industries said they would work towards a merger that would create the world's second-largest steel firm by 2012.

Copyright Agence France-Presse, 2011

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