The international credit ratings agency Moody's has announced a negative outlook for the European steel industry, as European steel companies' profitability is likely to deteriorate in 2013 as a result of declining demand and weak prices.
According to Moody's, steel demand in Europe will continue to decline due to unfavorable fundamentals in key end markets such as construction, automotive and capital goods. In 2013, European steel demand is estimated to be 2-4 percent lower than in 2012.
The slowdown in the Chinese economy will result in low prices for steelmaking raw materials and an excess of steel and, as a result, higher levels of exports and lower steel prices. The downside risk for the European region and the steel industry will be high given the uncertainties surrounding the Chinese economy and the euro area's sovereign debt issues.
According to Moody's forecasts, hot rolled coil prices in northern Europe will average €500/mt and rarely move above €530/mt over the next year. While Moody's expects the profitability of many of the rated western European steel companies will be moderately worse in 2013 than in 2012, as a result of the considerable differences between the companies and the markets they serve, there is potential for Kloeckner & Co. SE and Aperam S.A. to register improved EBITDA in 2013.
Regarding the Russian and CIS steel industry, Moody's expects domestic demand to be steady The rating agency expects the profitability of Russian and CIS companies including NLMK and Magnitogorsk Iron & Steel Works to decline in 2013.
Moody's could stabilize its sector outlook for the European steel industry if the European PMI rose to 49 and capacity utilization in the European steel industry moved to a modest 75 percent.