The speculative-grade corporate bond market has made a sharp turnaround from earlier in the year, said an article published today by Standard & Poor's, titled "U.S. Speculative-Grade Spreads Sector Index Review: Prices Might Be Ahead Of Fundamentals (Premium)."
"The spread on Standard & Poor's speculative-grade bond index has tightened 947 basis points this year to 700 basis points as of Nov. 12, and high-yield bond returns have eclipsed 50%," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group.
Credit quality has begun to stabilize, albeit at a very weak level. Downgrades have slowed considerably, falling to 106 in the third quarter of 2009 from 241 in the first quarter and 210 in the second quarter.
"Credit metrics, such as debt to EBITDA and interest coverage, are likely at or near the cyclical bottom. However, rapid improvement would take a surge in top-line growth, which we believe is unlikely to happen this year," said Ms. Vazza. "We expect fundamentals to remain weak for speculative-grade-rated companies in 2010."
Sectors with high leverage and low interest coverage levels such as forest products and building materials, automotive, capital goods, and media and entertainment have the highest risk premiums.
Spreads have tightened across all sectors, with some sectors, such as automotive, experiencing significant tightening, more so a result of the removal of defaulted issues from the pool rather than an increase in bond prices in the sector.
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect on the Global Credit Portal at www.globalcreditportal.com and to RatingsDirect at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.
Thursday, November 19, 2009
Sunday, November 8, 2009
Steel product makers fear Afta influx
Steel and stainless steel product manufacturers have called for measures to protect local businesses, at risk from the elimination of import tariffs under the Asean Free Trade Agreement (Afta)in January.
Once the import tariff is removed,cheaper steel and stainless steel products, mostly from China, are expected to flood into the local market.
Ekachai Youngvanich, vice-chairman of the executive committee of Satien Stainless Steel Plc and a member of the Federation of Thai Industries' steel club,said several steel and stainless steel companies had discussed the potential impact and how to tackle the problem.
"The government should help us and protect the local industry. We're worried that independent importers will bring in low-quality kitchenware products to Thailand. The market will get more intense and consumers will not be safe using these products," he said.
Satien Steel Kitchenware, the maker of Zebra kitchen products, aims to avoid tough competition by shifting to focus on premium products.
But governments in many Southeast Asian countries have already implemented measures to protect their manufacturers, which makes it harder for Thai companies to export to these markets.
For example, Malaysia has already set up the Malaysian Industrial Standards Institute to test imported Thai stainless-steel tubes.
"We think our company will get a positive effect when exporting products to Asean. The non-trade barrier will make our price go down, so we can sell 5% to 10% more products," said Mr Ekachai.
Purchasing power for stainless kitchenware products has improved both locally and overseas at the moment, he said. The company has had more export orders from the United States, Europe and Australia.
The company will therefore open its new 200-million-baht production facility at its Rayong factory by the middle of next year. This will raise production capacity by 10-15% from the current 6,000 tonnes per year, and should enable the company to meet demand over the next five years.
About 70% of production will serve the domestic market and the rest exports.
Sales of Satien Stainless Steel last year were at 1.2 billion baht. They are expected to increase by 5-7% this year,less than last year's double-digit growth due to the downturn and the H1N1 flu outbreak. Demand for stainless-steel kitchenware from hotels and restaurants has also fallen in line with the slump in tourism.
Mr Ekachai said demand for Satien's kitchenware will increase by 7-10% next year because of the rebound. The company aims to achieve annual sales of 1.5 billion baht within the next five years.
Once the import tariff is removed,cheaper steel and stainless steel products, mostly from China, are expected to flood into the local market.
Ekachai Youngvanich, vice-chairman of the executive committee of Satien Stainless Steel Plc and a member of the Federation of Thai Industries' steel club,said several steel and stainless steel companies had discussed the potential impact and how to tackle the problem.
"The government should help us and protect the local industry. We're worried that independent importers will bring in low-quality kitchenware products to Thailand. The market will get more intense and consumers will not be safe using these products," he said.
Satien Steel Kitchenware, the maker of Zebra kitchen products, aims to avoid tough competition by shifting to focus on premium products.
But governments in many Southeast Asian countries have already implemented measures to protect their manufacturers, which makes it harder for Thai companies to export to these markets.
For example, Malaysia has already set up the Malaysian Industrial Standards Institute to test imported Thai stainless-steel tubes.
"We think our company will get a positive effect when exporting products to Asean. The non-trade barrier will make our price go down, so we can sell 5% to 10% more products," said Mr Ekachai.
Purchasing power for stainless kitchenware products has improved both locally and overseas at the moment, he said. The company has had more export orders from the United States, Europe and Australia.
The company will therefore open its new 200-million-baht production facility at its Rayong factory by the middle of next year. This will raise production capacity by 10-15% from the current 6,000 tonnes per year, and should enable the company to meet demand over the next five years.
About 70% of production will serve the domestic market and the rest exports.
Sales of Satien Stainless Steel last year were at 1.2 billion baht. They are expected to increase by 5-7% this year,less than last year's double-digit growth due to the downturn and the H1N1 flu outbreak. Demand for stainless-steel kitchenware from hotels and restaurants has also fallen in line with the slump in tourism.
Mr Ekachai said demand for Satien's kitchenware will increase by 7-10% next year because of the rebound. The company aims to achieve annual sales of 1.5 billion baht within the next five years.
Wednesday, November 4, 2009
SCG PAPER TURNS TO ALTERNATIVE PULP MATERIALS
SCG Paper is resorting to other materials for paper pulp-making, to ease the expected increase in global waste paper prices due to higher demand from China.
President Chaovalit Ekabut said that the other materials for pulp-making, would offer the same quality as waste paper. Importantly, the production cost should be lower than when using waste paper to be imported from the United States.
The paper unit of the Siam Cement Group expects the global demand for waste paper next year to increase due to the business resumption of paper manufacturers in China.
Chaovalit said several Chinese paper manufacturers have resumed their operations after suspensions during the economic crisis. Those companies will have to order waste paper from the US, which is the largest supplier.
The move of Chinese paper-makers might affect other paper manufacturers including SCG Paper because the company is one of those that purchases scrap paper from the US to be made into new paper products.
Chinese paper manufacturers are expected to order a lot of scrap paper. They are expected to produce 2 million tonnes next year.
Chavalit said the company has to reduce risk from the expected shortage of scrap paper by considering using another material that is not made from scrap paper, such as weeds.
Other material prices should be lower than scrap paper, he said.
He said that the resumption of Chinese paper manufacturing has driven scrap paper prices up from the current level of between US$160 (Bt5,350) and $170 per tonne.
However, the scrap paper price is not expected to increase to $250 like in 2008, because of the low paper consumption of the US. The low consumption in the US is in line with the country's economic crisis. The consumption of paper this year dropped by 30 per cent.
In addition, the company believes the economic situation has bottomed out because sales revenue and net profit in the third quarter improved from the second quarter, he said.
SCG paper earned sales revenue of Bt11.23 billion, up 6 per cent from the second quarter while net |profit increased by 10 per cent to Bt701 million from the last quarter and increased 13 per cent year on year.
Chavalit noted that the pick up of sales revenue in the third quarter might help the total sales revenue this year meet flat growth or drop a little from last year's Bt47 billion. The company earlier predicted a plunge in sales in 2009 due to the crisis.
He said that the company outlook next year should be brighter because it will realise full revenue from a new paper craft plant in Vietnam. The company expected the plant in Vietnam would contribute Bt2.5 billion in sales revenue next year.
Chavalit added that besides the new plant in Vietnam, the company is ready for new investment. One of SCG Paper's investments is the merger and acquisition of paper plants in Thailand and overseas.
He could not reveal the investment budget for M&A, but said the M&As should be seen soon.
President Chaovalit Ekabut said that the other materials for pulp-making, would offer the same quality as waste paper. Importantly, the production cost should be lower than when using waste paper to be imported from the United States.
The paper unit of the Siam Cement Group expects the global demand for waste paper next year to increase due to the business resumption of paper manufacturers in China.
Chaovalit said several Chinese paper manufacturers have resumed their operations after suspensions during the economic crisis. Those companies will have to order waste paper from the US, which is the largest supplier.
The move of Chinese paper-makers might affect other paper manufacturers including SCG Paper because the company is one of those that purchases scrap paper from the US to be made into new paper products.
Chinese paper manufacturers are expected to order a lot of scrap paper. They are expected to produce 2 million tonnes next year.
Chavalit said the company has to reduce risk from the expected shortage of scrap paper by considering using another material that is not made from scrap paper, such as weeds.
Other material prices should be lower than scrap paper, he said.
He said that the resumption of Chinese paper manufacturing has driven scrap paper prices up from the current level of between US$160 (Bt5,350) and $170 per tonne.
However, the scrap paper price is not expected to increase to $250 like in 2008, because of the low paper consumption of the US. The low consumption in the US is in line with the country's economic crisis. The consumption of paper this year dropped by 30 per cent.
In addition, the company believes the economic situation has bottomed out because sales revenue and net profit in the third quarter improved from the second quarter, he said.
SCG paper earned sales revenue of Bt11.23 billion, up 6 per cent from the second quarter while net |profit increased by 10 per cent to Bt701 million from the last quarter and increased 13 per cent year on year.
Chavalit noted that the pick up of sales revenue in the third quarter might help the total sales revenue this year meet flat growth or drop a little from last year's Bt47 billion. The company earlier predicted a plunge in sales in 2009 due to the crisis.
He said that the company outlook next year should be brighter because it will realise full revenue from a new paper craft plant in Vietnam. The company expected the plant in Vietnam would contribute Bt2.5 billion in sales revenue next year.
Chavalit added that besides the new plant in Vietnam, the company is ready for new investment. One of SCG Paper's investments is the merger and acquisition of paper plants in Thailand and overseas.
He could not reveal the investment budget for M&A, but said the M&As should be seen soon.
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