Moody’s foresees stable 2018 outlook for European steel

Moody’s has published a stable outlook for the steel sector in Europe in 2018, the analyst says in a note sent to Kallanish.

“Sustained demand, higher year-over-year profits and the success of antidumping measures should support European steelmakers’ credit metrics and underpin the stable outlook on the sector into 2018,” says a Moody’s Investors Service report.published on 8 December.

“Our 2018 outlook for the steel sector in Europe is stable on the back of expected growth in steel demand from the construction and auto industries. Economic expansion, as signalled by the sustained improvement in Europe’s PMI, and rising profitability, as steel spreads widen, are also key supporting factors for our stable outlook,” says the report author Moody’s vice president and senior credit officer, Gianmarco Migliavacca.

Moody’s expects that steel demand from the auto, construction and capital goods sectors will grow in 2018. Apparent steel consumption is also expected to grow by 1.5% in 2018, broadly in line with Moody’s 1.9% GDP growth forecasted for the EU.

EU anti-dumping measures against a number of countries, including China, will strengthen European steelmakers’ pricing power into 2018. However, steel imports into the EU will continue to rise moderately despite tariffs as countries outside the tariffs’ scope continue to export steel into the EU, the analyst adds.

Steelmakers’ operating profitability will be supported by high spreads, as well as utilisation rates at the upper end of Moody’s 75%-85% range for a stable outlook and ongoing cost savings. Higher profits should enable steel manufacturers to further de-lever.

Merger and acquisition in the sector is likely to rise on the back of higher valuations in today’s more stable market, the analyst adds. However, current oversupply is unlikely to shrink until further consolidation had occurred. Indeed, capacity is unlikely to fall in the next 18-24 months despite ArcelorMittal’s purchase of Ilva and thyssenkrupp’s joint venture with Tata, Moody’s warns.