Moody's: Steel usage in Europe will grow by around 1.5-2% in 2017-18

Wednesday, 25 October 2017 14:52:27 (GMT+3)   |   Istanbul
       

International credit rating agency Moody’s has stated in a report that increasing demand, higher steel prices and improved profitability will underpin the continued stable outlook for the European steel industry into 2018.

According to Moody’s, keeping its outlook on the European steel sector stable reflects the expectation that steel consumption will grow by around 1.5-2 percent in 2017-18 on the back of improving economic prospects and demand growth from the automotive, construction and capital goods markets. European steelmakers should also see a boost in profits as demand growth, stable raw material prices and antidumping duties look set to support higher steel prices for the next 12-18 months. The supportive operating environment should translate into higher average steel spreads in 2018 compared with 2016, although at slightly lower levels than in 2017 as Moody’s assumes a moderation in European steel demand next year compared to 2017.

Moody’s expects that average capacity utilization rates at European steel mills should remain below 85 percent, which is within its range for a stable sector outlook. Structural overcapacity and rising imports from countries not subject to EU antidumping tariffs, like South Korea, Turkey and India, remain constraining factors. According to the European Steel Association (EUROFER), imports rose by five percent in the 12 months to May 2017, although the growth rate was slower than the 10 percent recorded in 2016.

The credit rating agency also stated that mergers and acquisitions in the sector are unlikely to translate into immediate reductions in the industry's overcapacity. Global steel giant ArcelorMittal's acquisition of the Italian steelmaker Ilva aims to increase steel production in southern Europe rather than rationalize production. Similarly, Germany-based steelmaker ThyssenKrupp AG's planned joint venture with India-headquartered steel giant Tata Steel may only consider consolidating production after 2020.

In addition, potential protectionist US trade policies could also pose a threat to Europe's steelmakers, according to the report. Import restrictions could create ripples, currently difficult to quantify but potentially large, in the global market likely to weaken the European steel sector, especially if they lead to increased imports into Europe from countries which would have targeted the US market instead.


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