International credit rating agency Moody’s has stated in a report that the recent steel price rally does not signal improved demand and will provide only a temporary boost to producers.
In its new report, Moody's indicated the rally has been driven by temporary supply-side factors that were likely to wane in the near future, noting that steel prices and utilization rates remain at historically weak levels. The ratings agency also noted that industry conditions would not support materially improved credit profiles for the rated steel producers.
Moody's said that imports have ebbed due to the softening US dollar and relatively favorable preliminary trade case rulings, both of which had provided a boost to the US domestic industry. However, the recent aggressive price rise is likely to attract higher imports soon, especially if final trade case determinations are not as favorable as anticipated.
Another driver behind the steel rally has been the uptick in raw material prices as China's government stimulus spending and looser monetary policies have lifted economic activity and spurred steel demand and prices. However, Moody's said the fundaments do not support the resulting price rise and that supplies continue to substantially outweigh demand, and will lead to lower prices in the near term.