International credit ratings agency Fitch Ratings has announced that it expects a further decline of five percent in domestic steel consumption in Russia in 2015 driven by deteriorating economic conditions. At the same time, Russian steel producers will be able to partly compensate lower domestic sales with higher exports.
In its report, Fitch says it expects further weakness in Russian domestic steel consumption driven by the falling automotive market, lower infrastructure spending and deteriorating conditions in the construction sector.
While the sector outlook is viewed as generally negative, Fitch believes that Russian steel companies are well prepared to withstand domestic demand weakness and worsened conditions on the capital markets. Nonetheless, market conditions are expected to remain challenging in 2015, especially in regards with accessibility to cheap refinancing.
Fitch expects Russian non-integrated steel companies to benefit more from a weak price environment on major raw materials, while integrated steel mills with relatively high production costs for iron ore and coking coal may experience reduced margins in their mining divisions. This should encourage integrated steel mills to divest or idle their most inefficient captive raw material subsidiaries to limit profitability impairment, according to Fitch.