Russian steel sector’s 2020 outlook remains stable: Moody’s

Moody’s anticipates a stable outlook for the Russian steel sector in 2020, driven by a manufacturing PMI index of 50-55 supporting high capacity utilisation at 75-85%. Domestic steel demand will grow modestly meanwhile.

GDP growth will aid stability, but 2019-2020 growth it will be lower than the 2.3% achieved in 2018, at about 1.4-1.5%, the rating agency says in a statement sent to Kallanish.

Moody’s expects Russian producers’ competitiveness in the export market and low imports to continue to support strong domestic capacity utilisation of around 80-85%. Demand will moderate however from the strong 2019 level, which was driven by one-off factors and is not sustainable, it says. The agency expects demand growth to slow to 1-2% in 2020, down from about 4-5% in 2019.

The construction and pipe sectors will continue to drive steel demand in 2020. Recovery in residential completions is expected to be modest next year however, albeit improving from what Russia’s ministry forecasts as a -4.5% fall in residential completions in 2019. Despite the fall, consumption of long and flat steel products in the construction sector rose by 12% and 6% respectively, in first half 2019, leading to a 9% rise in the sector’s overall consumption.

Moody’s says the Russian domestic price premium is also likely to contract in 2020. The low cost of slab production however, based on a high level of integration, will continue to enable cushioning even as export markets weaken. The September 2019 premium reached over $100/tonne for hot rolled coil, it notes.

The agency sees bleak prospects in key export markets as major challenge for 2020. This is foreseen as growing trade protectionism and a weakening outlook in key export markets constrain Russian steelmakers’ flexibility in switching between domestic and export markets.