By Alex MacDonald
LONDON--The outlook for the European steel industry will remain
negative over the next 12 to 18 months due to weak steel prices,
said credit ratings agency Moody's Investors Services in an outlook
report Monday.
"We expect weak demand, capacity utilisation below 75%, and
falling raw material prices to keep downward pressure on steel
prices, not only for hot rolled coil but also for long carbon steel
products used primarily in construction, high-strength steel used
in transportation and engineered products, and stainless steel,"
said Steven Oman, a Moody's Senior Vice President and author of the
outlook report.
Steel output in the European Union bloc of 27 member states was
down 6.2% on year in the first four months of the year compared
with the same period a year ago, according to the latest figures
from the World Steel Association. The average EU steel composite
steel price was down 8.2% in the same period at $782.50 a metric
ton, according to U.K.-based consultancy MEPS International
Ltd.
"Depressed steel prices will pressure nearly all of Moody's
European issuers," including German steelmaker ThyssenKrupp AG
(TKA.XE) and Switzerland-based Schmolz + Bickenbach AG (STLN.EB) as
well as Luxembourg-based stainless steelmaker Aperam S.A.
(056997440.LU), the credit ratings agency said.
It noted that ArcelorMittal (MT), the world's largest steelmaker
by volume, should benefit from its global footprint and expanding
iron ore production, which should help mitigate some of the
negative effects of the European steel market.
Moody's said the prolonged weakness of the European economy has
now affected every steel-using end market in Europe and is damping
demand in other regions, forcing Commonwealth of Independent States
steel producers, for example, to rely heavily on domestic sales to
drive profitability. "Moody's believes that steel demand within the
27 countries that make up the European Union will decline 2%-4% in
2013, on top of a 9.6% decline in 2012," it said.
The credit ratings agency added that the profitability of
Russian and CIS producers will shrink in 2013 but remain acceptable
with Russian steel demand forecast to grow 3% to 5% in 2013 and
Russian steel capacity utilisation reaching more than 85%.
However, lower iron ore and coking coal prices during the period
will hurt the results of the integrated Russian steel producers
such as Novolipetsk Iron & Steel Corp. (NLMK.RS), Severstal JSC
(CHMF.RS) and Evraz PLC (EVR.LN).
Economic growth in the U.S., China and the rest of Asia has
slowed. Global purchasing manager indexes are hovering around 50,
and structural issues are limiting government-sponsored stimulus
measures. This limits European exports of cars and capital goods
and exacerbates the steel supply-demand imbalance, it noted.
Moody's said it would stabilize its European steel industry
sector outlook if the European PMI rose to 49 and capacity
utilisation moved to a modest 75%. A reading below 50 signals a
contraction; above it signals an expansion.
-Write to Alex MacDonald at alex.macdonald@wsj.com