International ratings agency Moody's has said that the coronavirus outbreak has made a tough operating environment worse for global steelmakers. The key driver of the negative outlook are the weak fundamentals in 2019 and the coronavirus outbreak. The negative industry outlooks for the steel industries in the US (since October 2019), Europe (since May 2019) and Asia (since August 2019) were largely based on weak fundamentals in 2019 and all of them predate the coronavirus outbreak. However, Moody’s has decided to cut the outlook for the Russian and Brazilian steel industries to negative as well due to worsening conditions after the spread of the coronavirus across the world.
Moody’s said, “The broad macroeconomic weakness spreading in the wake of the pandemic is driving down demand for steel in core industries like manufacturing, automotive, construction, and oil & gas exploration.”
It added, “Our macroeconomic board forecasts a global economic contraction for 2020 with recovery for the G-20 advanced economies in 2021. For important steel consuming countries, our forecast is for: US GDP negative 2.0 percent, Euro area negative 2.2 percent, China 3.3 percent, Brazil negative 1.6 percent, Russia 0.5 percent and Japan negative 2.4 percent.”
According to Moody’s, in the US industry performance will decline this year, although electric arc furnace producers are likely to experience a lesser hit than integrated ones. Automotive assembly plants have been idled and there is no definite date for resuming production and this situation will contribute to production cuts and cost pressures, particularly for blast furnaces, which have high fixed costs.
Besides, Moody’s forecasts that steel demand in Europe will decrease further this year, following an almost four percent decline in the previous year due to a slump in vehicle production.
For Brazil, the agency expects its steel production and sales to fall in March and April due to the coronavirus.
Moody’s has also revised its outlook for Russia to negative due to expectations of a decline in steel demand amid low oil prices and weak manufacturing PMI. Moody’s anticipates steel demand in Russia will decrease by between three percent and seven percent this year, compared with a previous estimate of 1-2 percent growth for the year.