The outlook for the European steel industry is stable, reflecting the rebound of prices and volumes in recent months, as well as continued strong demand from China, said international ratings agency Moody's Investors. The outlook also factors in the fragility of the economic recovery in major markets and the difficulty in forecasting demand for steel.
Assessing the European steel industry outlook, Moody's senior vice president Matthias Hellstern said, "The stable outlook reflects that, as of the end of May 2010, capacity utilization in the European steel industry seemed to have peaked, with most European plants running at full capacity, predominantly driven by restocking effects and seasonality of demand." Steel prices also seem to have peaked, predominantly driven by recent strong demand, he added.
In the report, entitled ‘European Steel Producers' Recovery on Track but Demand Remains Fragile', Moody's said that it expects end-user demand for steel from the construction industry to remain weak for the next 6-12 months. Similarly, among auto manufacturers (the other major steel consumers in Europe) demand is likely to weaken again in the second half of 2010 following a resurgence in production in the first half. "If end-user demand does not pick up, there is a risk of overcapacity in all steel markets. This could lead to price pressure in the medium term and the need for additional restructuring measures," Mr. Hellstern noted.
Moody's stated that it believes the second half of 2010 will show a weakening trend, which, together with positive developments - perhaps a more robust recovery than expected - in the first half of the year, should lead to an overall stable environment for the industry in the next 12-18 months. "However, we believe that 2011 will be a critical year for the industry given the still fragile economic recovery in the major mature markets and limited visibility for further development in demand for steel," Mr. Hellstern concluded.