Despite posting a relatively solid performance since the economic turmoil of 2009, the slow recovery of domestic demand continues to limit the growth prospects of the Russian steel industry, said international ratings agency Moody's Investors, adding that export sales of predominately semi-finished steel products expose Russian producers to more price volatility.
Accordingly, after the significant increase in steel prices in Q2, prices leveled off in Q3. During the next two quarters, Moody's believes that steel prices will most likely remain relatively stable. Russian steel producers are to a large extent immune from recent price hikes in key raw materials due to their high degree of vertical integration. "We expect that the export sales of semi-finished steel goods will continue to support current production and high-capacity utilization rates if domestic demand remains sluggish," Moody's states.
In addition, Moody's considers that the recent move to a short-term pricing mechanism for key raw materials, such as coal and iron ore, will have little impact on the performance of Russian steel producers due to their high level of self-sufficiency in raw materials.
Looking ahead, Moody's notes that, although domestic demand is weak, a return to economic growth in Russia should help to revive it, which is important for the producers' long-term stability and growth prospects. Accordingly, any gradual recovery of domestic demand would be driven by an increase in economic activities that started in January. Thus, along with growth in GDP, which according to the World Bank is forecast to grow 4.5 percent in 2010 after declining by 7.9 percent in 2009, some steel-consuming industries also registered growth.