Fitch sees modest 2020 steel recovery, downside risks

Global apparent steel consumption will grow only 1% on-year in 2020. However, capacity utilisation and margins will improve in the second half of the year as long as old, polluting plants close in China and more balanced supply is achieved in Europe. So says Fitch Ratings, adding it forecasts a negative outlook for the steel sector.

Fitch has identified four factors to watch. One is trade tensions and protectionism across the globe and their impact on economic growth, particularly industrial production, light vehicle sales and construction. Also important are the evolution of economic and environmental policies in China, as well as its net steel export position; and the European climate change agenda. Finally, significant is the investment discipline of US companies to maintain adequate capacity utilisation.

“Over the past two years companies have talked at length of their investment plans to increase capacity and/or debottleneck existing assets,” Oliver Schuh, Lead Analyst Metals & Mining at Fitch Ratings, says in a report sent to Kallanish. “With weaker economic conditions in 2019, the supply push from those investments has negatively affected capacity utilisation and margins, particularly in Europe.”

“While we expect a moderate recovery in 2020, risks are more skewed towards the downside, linked to geopolitical tensions and political uncertainty in some countries as well as progressive reforms in China coinciding with a managed slowdown of growth ambitions,” he adds.

Fitch expects Chinese steel exports to rise to 70 million-80m tonnes in 2020 from 60m-70m in 2019. This is as domestic steel demand in 2020 weakens and operational capacity reduces as steelmakers consider their options to manage their assets in line with new environmental standards. However, this export growth will be limited by the rise in international protectionism.