International credit rating agency Moody’s has stated in a report that the outlook for Russia's steel industry for 2017 is negative as fragile, volatile domestic steel demand and weak end-user sentiment outweigh its steelmakers' continued high profitability.
According to Moody’s, demand for steel will remain weak in Russia into 2017 unless there is a sustainable recovery in the economy and in domestic consumers' confidence and purchasing power, particularly in the construction sector, the biggest steel end-user. In addition, reduced orders for large diameter pipes and sharply falling domestic car sales are also hampering demand for steel in Russia.
Moody’s stated that Russian steelmakers will remain competitive in the export markets owing to their low costs in US dollar terms, backed by continuing operational improvements and the weak ruble. Russian steelmakers NLMK, Severstal, Magnitogorsk Iron and Steel Works (MMK) and Evraz Group, with largely ruble-based costs and substantial foreign currency revenues, will maintain a comfortable profitability cushion against any fall in steel prices as long as the weakness of the ruble persists.
Moody’s also stated that Russian steelmakers will also be able to increase exports if domestic demand is insufficient to maintain high capacity utilization, although trade protection measures against cheap imports of steel from Russia pose an increasing risk. While each single duty is likely to only modestly reduce companies' earnings, the cumulative impact would be stronger if such measures were widely introduced across more markets and products.