The Issuer Rating reflects Shagang’s competitive market position as the largest private steel producer in China, operating efficiency and above industry-average utilization rates, and operating cash flow generation capability, which aid its financial deleveraging efforts. The company’s rating is constrained by its low raw materials self-sufficiency which makes it vulnerable to commodity price fluctuations, operational concentration and the lack of diversification into high value-added products on a relative basis.
The Positive Outlook reflects our expectation that Shagang will sustain a stable and sizable scale of operation, while continue to improve its financial leverage below the quantitative threholds of our upgrade scenario, and maintain its improved margins, positive operating cash flow and liquidity position.