.gif?width=220&height=200&mediaprotectionhash=b13da841472e6e7ed500ee35df2a350aaf53d75246118b33ea2095cc7e9a3fc4&ext=.gif)
Moody's: Stable European Steel Outlook Supported by Improving Fundamentals and Sentiment
12/26/2013 - Moody's outlook for the European steel industry is stable and reflects the rating agency's expectations for the fundamental business conditions in the industry over the next 12 to 18 months, saidMoody's Investors Service in a recently-published industry outlook.
The European Purchasing Manager Index (PMI) has been above 50 since July which indicates that sentiment is improving, which Moody's expect to translate into a tepid recovery in end user sectors in 2014.
The new report, entitled "European Steel Industry: Improving Sentiment and End-User Markets Support Flat to Slightly Higher Profits for European Steel Industry", is now available on www.moodys.com.
The euro area economy is improving, although recovery is fragile. Moody's latest macroeconomic forecast is for euro area GDP growth of 0.5–1.5% in 2014 versus flat to a 1% contraction in 2013 and there are signs that economic activity may be bottoming out in peripheral states. In Russia Moody's forecasts GDP growth of 2.5–3.5% in 2014 after a slowing to 1–2% in 2013, which the rating agency expects to help growth in steel end user markets.
Moody's has a stable outlook on the European building materials sector where volumes are expected to stabilize at low levels in 2014 and forecasts Western European light vehicle sales growth of 3% in 2014 versus a 5% contraction in 2013. Moody's believes that apparent steel use, which is a good proxy for end-user demand, in the EU will be flat to up 1–2% in 2014, versus Moody's expectation of a 1–2% decline in 2013.
The rating agency also expects that capacity utilization in the EU will remain at its current level, which Moody's estimates at about 75–77%, but that it will remain lower than the global average (estimated by the World Steel Association at around 78% in October). This is unlikely to increase further in 2014 because capacity closures are difficult to implement while the economy remains weak.
Moody's forecasts that the European steel industry's average profitability will be flat to slightly higher in 2014 versus 2013. The rating agency expects that hot rolled coil prices will bottom out in 2014 after an 8–10% decline in 2013.
Robust iron ore prices will benefit vertically integrated steelmakers. Iron ore prices have been robust in the year to date and Moody's believes that they will remain around current levels in 2014. This will benefit producers with iron ore operations such as NLMK (Baa3 stable), Severstal OAO (Ba1 positive), Evraz Group S.A. (Ba3 stable) and ArcelorMittal (Ba1 negative).
Moody's would consider changing the European steel industry sector outlook to positive if capacity utilization rose to above 85% and European Manufacturing PMI remained above 55 for several quarters. However, the rating agency would consider changing the outlook to negative if capacity utilization declines to below 75% and the PMI falls to below 49 for several quarters.
The new report, entitled "European Steel Industry: Improving Sentiment and End-User Markets Support Flat to Slightly Higher Profits for European Steel Industry", is now available on www.moodys.com.
The euro area economy is improving, although recovery is fragile. Moody's latest macroeconomic forecast is for euro area GDP growth of 0.5–1.5% in 2014 versus flat to a 1% contraction in 2013 and there are signs that economic activity may be bottoming out in peripheral states. In Russia Moody's forecasts GDP growth of 2.5–3.5% in 2014 after a slowing to 1–2% in 2013, which the rating agency expects to help growth in steel end user markets.
Moody's has a stable outlook on the European building materials sector where volumes are expected to stabilize at low levels in 2014 and forecasts Western European light vehicle sales growth of 3% in 2014 versus a 5% contraction in 2013. Moody's believes that apparent steel use, which is a good proxy for end-user demand, in the EU will be flat to up 1–2% in 2014, versus Moody's expectation of a 1–2% decline in 2013.
The rating agency also expects that capacity utilization in the EU will remain at its current level, which Moody's estimates at about 75–77%, but that it will remain lower than the global average (estimated by the World Steel Association at around 78% in October). This is unlikely to increase further in 2014 because capacity closures are difficult to implement while the economy remains weak.
Moody's forecasts that the European steel industry's average profitability will be flat to slightly higher in 2014 versus 2013. The rating agency expects that hot rolled coil prices will bottom out in 2014 after an 8–10% decline in 2013.
Robust iron ore prices will benefit vertically integrated steelmakers. Iron ore prices have been robust in the year to date and Moody's believes that they will remain around current levels in 2014. This will benefit producers with iron ore operations such as NLMK (Baa3 stable), Severstal OAO (Ba1 positive), Evraz Group S.A. (Ba3 stable) and ArcelorMittal (Ba1 negative).
Moody's would consider changing the European steel industry sector outlook to positive if capacity utilization rose to above 85% and European Manufacturing PMI remained above 55 for several quarters. However, the rating agency would consider changing the outlook to negative if capacity utilization declines to below 75% and the PMI falls to below 49 for several quarters.
