The outlook for the European steel industry will remain stable over the next 12 months as continued growth in the main steel-using end markets and improving regional economic growth prospects will support steel demand in Europe, according to international credit rating agency Moody's. However, high pressure on prices could lead to lower profitability prospects. The outlook for Russian steelmakers is more negative with the country in continued recession, Moody’s added.
"Our outlook for the European steel sector over the next year remains within our stable range as we expect sustained demand from the auto, construction and consumer goods industries. Brighter economic growth prospects in western Europe are also set to mitigate further anticipated price falls as a result of cheap Chinese imports and oversupply in Italy," said Hubert Allemani, Moody's vice president and senior analyst.
The rating agency pointed out that ArcelorMittal, SSAB AB, Tata Steel UK Holdings Limited and smaller mills producing lower-grade steel, long products or semi-finished products such as Cognor S.A. are facing price pressure from cheap Chinese imports. Other more specialized steel manufacturers, such as Ovako Group AB and SCHMOLZ + BICKENBACH AG, should be less affected by the price declines due to their focus on engineered or alloy steel.
The situation for steelmakers in Russia, which is in recession, is much weaker but sustainable, Moody’s stated. The manufacturing PMI has been around 48-49 (which indicates a contraction) since December 2014 because of declining GDP and the weaker ruble's pressure on prices. However, Russian steelmakers are competitive in export markets and their average capacity utilization has remained high above 80 percent. Falling steel prices have less of an impact for Russian steelmakers, because their cost bases are typically lower than those of their European peers.