International credit ratings agency Moody's has announced that it has changed its outlook for the European steel sector to negative as the sharp fall in steel prices weighs so heavily on profitability that it will take at least 18 months to return to levels close to those of 2014. However, Russian steelmakers' lower costs supported by the depreciation of the ruble make them more resilient to steel price declines.
According to Moody’s, the large volume of cheaper steel products imported from China and the rest of Asia are pressuring European steel manufacturers' margins, which are declining despite the prevailing low raw material cost environment. In response to rising imports and falling prices, many manufacturers are adapting their production output. In the absence of price discipline from China, any improvement in steelmakers' profitability will most likely come from capacity cuts and/or other cost reductions as they adapt their cost structure to cope with lower steel prices.
Meanwhile, Russian steelmakers are better positioned to cope with the ongoing decline in both domestic and export prices because their costs are lower than their European peers, in particular due to support from the depreciation of the ruble.