The global rating agency said that ArcelorMittal's operating environment is likely to get more worse before getting better.
Moody's Investors Service has cut the rating to 'Ba1' -- a speculative investment grade -- from 'Baa3'.
"The downgrade reflects the deterioration in global steel markets over the last six months, as evidenced by ArcelorMittal's third quarter 2012 performance, its worst quarter since 2Q09," Moody's said in a statement.
In the 2012 third quarter, steel shipments were down 8.3 per cent compared to the previous three months.
The steel behemoth had an operating loss and free cash flow was negative USD 1.9 billion, causing an increase in the company's gross debt.
According to the agency, the rating action would affect about USD 24 billion of debt.
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"We see challenging conditions continuing for ArcelorMittal over several quarters with its operating environment more likely to get worse before it gets better," Steve Oman, who is senior vice president and lead analyst for the EMEA steel industry at Moody's, said.
"As a result, the amount of debt reduction the company must realise in order to hold a Baa3 rating is so large as to be unachievable or, if attempted through asset disposals, will materially impact the core operations and earnings of the company," Oman said.
Noting that execution of asset sales or other credit enhancing measures are "uncertain in this environment", the rating agency said the actions announced by the steel maker so far to preserve cash has been modest.
The rating action includes the senior unsecured notes and Euro MTNs of ArcelorMittal and the senior unsecured notes of ArcelorMittal Finance and ArcelorMittal USA.
"The dividend cut announced last week will not impact cash flow until 2013 and the USD 650 million subordinated perpetual capital security issued in September only resulted in a USD 325 million reduction in debt, which was more than offset by the 3Q12 debt increase that funded operating losses and capex," it said.
Lakshmi Mittal-led ArcelorMittal operates about 65 integrated and minimill steel-making facilities spread across more than 20 countries. Together, they have an annual production capacity of around 125 million tonnes of crude steel per year.
Going by Moody's, over the last 12 months, the company shipped 84 million tonnes of steel and had sales of USD 87 billion.