Standard & Poor’s Ratings Services has affirmed its ‘B’ long-term corporate credit rating and its ‘ruA+’ Russia national scale ratings on Russian steelmaker OAO Magnitogorsk Metallurgical Kombinat (MMK).

The outlook is stable.

Standard & Poor’s considers new trade restrictions imposed by China to be a part of industry risk already incorporated in the ratings on MMK.

“The ratings on MMK reflect the challenging environment of the steel industry and the company’s ambitious investment plans, mitigated by the benefits of a competitive cost base, a high share of exports, a growing domestic steel market, and MMK’s position as Russia’s largest steelmaker, with a 19% market share,” says Standard & Poor’s credit analyst Elena Anankina.

MMK is an integrated steelmaker, with a crude steel output of 10.3mn metric tons and sales of US$1.7bn in financial 2001, located in Magnitogorsk (southern Urals).

“The ratings and outlook on MMK are not affected by China imposing quotas and tariffs on steel imports from Russia and some other countries, effective November 20, 2002,” adds Anankina.

The trade restrictions affect MMK because China is one of its key export markets, responsible for 22% of the company’s export revenues, and 9% of its total revenues, in 2001. Quotas will limit market flexibility and constrain the company’s ability to increase total exports to the Chinese market, one of the fastest growing in the world. MMK may also face some risks in the transitional period, as Russian steelmakers compete with each other for the allocation of quotas. In addition, product stocks accumulated by the traders may affect short-term demand and prices. “Standard & Poor’s takes some comfort in that the quota is higher than historical average Russian exports to China, that it provides an opportunity to increase sales gradually, and that it covers only a limited number of steel products,” adds Anankina. “Standard & Poor’s believes the quota will therefore not result in any significant disruption in the overall sales of MMK.”