Pre-coronavirus demand to return in late 2021: Fitch

Global steel demand will return to pre-coronavirus levels only towards the end of 2021, even if the health crisis is contained by the second half of 2020, says Fitch Ratings.

Steel prices will decline in 2020 despite some growth in the first quarter, primarily due to weakening demand but also due to the expected raw materials price decline. However, destocking achieved last year in Europe and the US should provide some support, the credit rating agency says.

Fitch has downgraded ArcelorMittal (AM)’s Long-Term Issuer Default Rating (IDR) and senior unsecured ratings to ‘BB+’ from ‘BBB-‘. The outlook remains negative.

The steelmaker is well-placed to cope with the impact of the coronavirus pandemic, with very strong liquidity of $10.4 billion of cash and committed credit lines against a short-term debt of $2.6 billion. However, the company will come under pressure from the coronavirus economic fallout extending through most of 2021, translating into material pressure on steel consuming industries, Fitch observes.

ArcelorMittal’s capital expenditure in 2020 will be reduced below previous guidance as the firm is idling crude steel capacities and finishing lines to align production with demand. Production cuts are expected to be more profound in Europe but output could be affected in other regions as the spread of the virus, especially in the US, has intensified recently.

“As demand-driven pressure will continue amid the coronavirus spread, we anticipate that steel margins will squeeze further exacerbated by AM’s relatively high cost position on the cost curve,” Fitch says in a note seen by Kallanish. “As a mitigating factor, we believe that government support will offset some fixed costs of temporary closures.”

Fitch forecasts ArcelorMittal’s Ebitda to decline by about -15% on-year in 2020, down from $4.8 billion in 2019. The steelmaker’s funds from operations (FFO) gross leverage reached 5.6x in 2019 despite efforts to preserve cash. Amid the current market, deleveraging will be further delayed due to weaker Ebitda and FFO generation.