Investing.com -- Moody’s Ratings has downgraded the outlook for Ryerson Holding Corporation from stable to negative, while affirming its corporate family rating (CFR) of Ba3. The ratings agency has also maintained Ryerson’s speculative grade liquidity rating at SGL-2.

The change in outlook is due to a decline in Ryerson’s operational and financial performance, reduced demand in some of the markets it serves, and increased borrowing. These factors have resulted in a sharp drop in earnings, high leverage, and overall weak credit metrics. Despite higher steel prices and the completion of a three-year capital expenditure program, Moody’s believes that Ryerson’s performance will not improve significantly in 2025-26 and its credit metrics will remain weak for the current rating.

Ryerson’s Ba3 corporate family rating is backed by the company’s overall size and scale, its product and customer diversification, countercyclical working capital needs, limited maintenance capital expenditure requirements, and good liquidity profile. The rating also benefits from the significant debt reduction completed between 2018 and 2022, which has improved its business resilience during periods of industry volatility.

However, Ryerson’s rating is constrained by its reliance on cyclical end markets, exposure to volatile steel and metals prices, and the highly competitive metals distribution sector, which typically results in somewhat weak and volatile profit margins through the cycle.

Ryerson’s operating performance weakened during Q4 2024 and the full year 2024 due to lower prices, operational disruptions, and subdued end market demand. For the full year 2024, revenue was $4.6 billion, down 10.0% from 2023, with average selling prices decreasing by 9.7% year-over-year.

The underperformance was driven by several factors, including slightly lower volumes, lower prices, and weaker demand across key end markets such as HVAC, construction equipment, and industrial machinery. Margin compression was evident throughout 2024, driven by lower average selling prices and increased costs related to personnel, operating expenses, and delivery expenses.

Moody’s expects Ryerson’s performance to improve in the next 12-18 months, aided by projected modest growth in shipments, higher product pricing, operational efficiencies, and improved service levels following the completion of its three-year capital expenditure program.

However, there is risk that steel and metals demand and prices could weaken as the year progresses with inflationary cost pressures, elevated interest rates, and policy uncertainty potentially weighing on economic growth. This could lead to lower than expected shipments, capacity utilization, weaker pricing, and persistently low operating margins for Ryerson.

Ryerson’s SGL-2 speculative grade liquidity rating reflects its good liquidity profile consisting of $28 million of unrestricted cash and $376 million of availability on its $1.3 billion revolving credit facility as of December 31, 2024.

Ryerson’s ratings could be upgraded if it sustains an adjusted leverage ratio below 3.0x and EBIT margins of at least 8.0% while maintaining a good liquidity profile. Conversely, the ratings could be downgraded if its operating performance and credit metrics remain weak, and it sustains a leverage ratio above 4.0x and EBIT margins below 6.0% or experiences a significant deterioration in its liquidity. More aggressive financial policies such as debt-financed dividends, share repurchases or acquisitions could also result in a downgrade.

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