Fitch: Steel demand to continue slow, steady recovery over next 12-18 months

Global ratings agency Fitch Ratings expects to see demand for steel to continue on a slow and steady recovery trend over the next 12-18 months, but not to reach peak levels for developed economies until 2012, according to its ‘Worldwide Steel Outlook' issued on June 28.
 
According to the report, pricing should continue to be constrained by excess capacity and cost pass-through could be challenging in the second half of 2010. Excess or below-cost production should be limited.
 
"With capacity utilization in most regions above 70 percent, steel producers are better able to manage profitable production and prudent investment," said Monica Bonar, senior director at Fitch. "Producers with raw materials integration should do relatively better given the rebound in raw materials prices," she concluded.
 
Fitch said that it believes that producers with relatively high exposure to value-added steel products should benefit from premium pricing and those with substantial operating scale, which can afford the ability to temporarily curtail production during lulls to reduce costs while serving customer demand, should also show sustainable advantage. Producers with relatively high exposure to construction in some developed countries will be disadvantaged as a result of credit- or fiscal-induced austerity spending levels over the next 18-24 months, Fitch said.
 
Fitch also noted that recent monetary tightening and efforts to cool property speculation in China may result in slowing domestic demand and excess supply. Cancelation of the nine percent value added tax rebate on some steel exports beginning July 15, 2010 and a willingness to let the RMB appreciate could constrain China's steel exports.