International ratings agency Moody’s has announced that it has revised the outlook for the global steel and mining industry to positive from stable on the back of rising steel demand and tight supplies for steel and iron ore as economic activity picks up in the wake of the pandemic. The industry’s EBITDA is expected to grow by about 30 percent over the next 12 to 18 months as the world economy recovers from the pandemic-induced slowdown and as demand for steel and iron ore increases while supplies remain tight.
Meanwhile, steelmakers’ operating results and cash flow will improve significantly in the next year amid historically high prices. Producers in Europe, China and elsewhere are facing rising production costs as they invest in cleaner technologies, while steel prices will gradually soften as supply and demand rebalance. Similarly, in the US and other countries that depend on electric arc furnaces, costs for scrap and other metallics are rising.
According to Moody’s, although the currently high prices for iron ore are not sustainable, market fundamentals remain strong for 2021 due to supply constraints and a lack of major expansion projects in the coming years. High prices will support strong cash flow for the major producers, some of which will post all-time high cash flow and EBITDA.
According to the agency’s statement, coal producers’ cash flow and earnings will improve significantly this year, though prices will ease off and the post-coronavirus bump in demand will decrease later in 2021. Demand for thermal coal and metallurgical coal, which are used in steel production, will pick up. Thermal coal demand will increase by more than three percent in 2021, after falling by more than five percent in 2020.