Credit default-swap spreads of London-based aluminum and steel-maker Corus Group tightened roughly 20 basis points last week as initial panic over U.S.-imposed steel tariffs died down slightly and the broader market moved tighter. Mid-market five-year protection was quoted at 400 basis points Thursday, about 20bps tighter than at the beginning of the week. Spreads had widened roughly 50bps the previous week on news of the steel tariff. "Initially the market tried to push it higher, but now it is basically trading flat to where it was [before the tariff was announced]," said one trader. However, he noted Corus and other European steelmakers have underperformed. "The general trend has been for credit to come in, but steel has effectively lagged whilst pretty much everything else--oil, retail, paper and tobacco--has all come in even more," another trader in London added.
Still, the fundamental outlook for Corus has not changed this week and the company still faces serious hurdles, said Renate Labak, v.p. and senior analyst at Moody's Investors Service in Frankfurt. She said Corus and its European peers will have difficulty in sustaining higher steel prices because of the U.S. tariffs as Europe becomes flooded with cheap steel from Eastern Europe and Asia that otherwise would have been headed to the U.S. "The tariffs make it unprofitable to export to the U.S., so excess capacity producers will try to import more to Europe and that will hit the European steelmakers," she said. Moody's rates Corus Baa2, with a negative outlook and Standard & Poor's has it at BBB, also on downgrade watch.
Five-Year Credit Protection On Corus
Source: JPMorgan
