Moody’s is ‘negative’ on Tata Steel’s outlook

 MOODY'S Investors Service has downgraded Tata Steel's outlook on its 'Ba1' corporate family rating to 'negative' from 'stable', following worries after Corus announced production cuts due to a slowdown in demand in Europe and the US.
    Corus recently said it would cut production by around 20% over three months. Since the Anglo-Dutch steelmaker accounts for about 76% of Tata Steel's total revenue, any change in Corus' financials would impact Tata Steel also.
    "The change in outlook reflects the more challenging operating conditions now facing Tata Steel UK (Corus) as a result of the likely deterioration in demand in Europe and the UK in the next 18 months, with declining steel prices and reduced production volumes," Moody's analyst Ivan Palacios said in the statement.
    Tata Steel acquired Corus in 2007 for $12 billion in a highprofile transaction that catapulted the Tata group company to the world's sixth largest slot, with an annual production capacity of around 30 million tonne of crude steel.
    The recent squeeze in credit and an overall weak sentiment after the collapse of large US and European banks have affected demand, forcing many industries in the steel sector to adopt production cuts. Apart from Corus, other large steelmakers such as ArcelorMittal and Posco have also announced their intention to cut output.
    Incidentally, Tata Steel's rating is two notches higher than the rating of Corus, reflecting its stronger business and financial risk profiles mainly due to the profitability of its Indian operations. Tata Steel is largely insulated from the ongoing economic conditions because the Jamshedpur-based company has its own iron ore mines and also accounts for a prominent share of the local steel market.