Fitch Ratings has downgraded its issuer default rating (IDR) for US Steel to BB- from BB, it said this week.
The ratings outlook is stable.
The ratings reflect adequate liquidity, weak but improving market conditions and a period of higher financial leverage, while earnings are below the expected average.
The stable outlook reflects Fitchs view that US Steels liquidity is sufficient to support operations, should the recovery remain weak for the next 12-18 months, it said.
Fitch believes that free cashflow could be negative-$160 million to neutral in 2012 given high capital spending, offset by a modest workdown of raw material inventory. Capital expenditures are expected to remain at elevated levels with projects to improve costs or for new products, it added.
While management has a high degree of control over its raw materials, the company has a large fixed cost base, and industry-wide capacity utilisation in North America has been less than 80% ,thereby pressuring earnings, it concluded.
Industry-wide capacity utilisation has averaged 78% in the USA for the year to date and recently hit 81%.
US Steels capacity utilisation for North America for the first quarter was 83%.