International credit rating agency Moody's has announced that it has raised the European steel industry outlook to stable from negative given the improving fundamentals in the European steel industry, reflected by slight growth in euro area GDP and in the steel end-user markets. The outlook had been negative since October 2011.
Moody's expects the growth in the EU's apparent steel use, which is a good proxy for end-user demand, will be flat to up 1-2 percent in 2014, versus an expected 1-2 percent decline in 2013.
"Despite the fragility in the euro area economy recovery, we are seeing the European steel industry starting to benefit from the slight improvement," says Moody's. "Next year, we also expect improvements in the steel end-user sectors, such as volumes stabilizing at low levels in the building materials industry and some growth in European light vehicle sales, which in turn will push demand growth in the steel sector," the statement continued.
Moody's anticipates that capacity utilization in the EU will remain at its current level, which the rating agency estimates at approximately 75-77 percent, but expects that it will continue to be lower than the global average, currently standing at 79 percent. Moody's said that it would change the European steel industry outlook to positive if capacity utilization rose to above 85 percent.
In addition, Moody's forecasts that the European steel industry's average profitability will be flat to slightly higher in 2014 versus 2013. The rating agency expects hot rolled coil prices to bottom out in 2014 after an 8-10 percent decline in 2013. Furthermore, iron ore prices have been robust in the year to date and Moody's believes they will remain around current levels in 2014. This will benefit producers with iron ore operations such as NLMK, Severstal, Evraz Group and ArcelorMittal.