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Stable European steel outlook supported by improving fundamentals and sentiment: Moody's
The outlook for the European steel industry is stable and reflects expectations for the fundamental business conditions in the industry over the next 12 to 18 months, says Moody's Investors Service in a new industry outlook
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he outlookfor the European steel industry is stable and reflects expectations for thefundamental business conditions in the industry over the next 12 to 18 months, says Moody's Investors Service in a new industry outlook.
The European Purchasing Manager Index (PMI) has been above 50 since July, indicating that sentiment is improving, which Moody's expects to see translated 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", says the eurozone economy is improving, although recovery is fragile.
Moody's latest macroeconomic forecast is for eurozone gross domestic product (GDP) growth of 0.5 to 1.5 percent in 2014 versus the flat to 1 percent 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 to 3.5 percent in 2014 after a slowing to 1 percent to 2 percent in 2013, which the ratings 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 percent in 2014 versus a 5 percent contraction in 2013.
Moody's believes that apparent steel use, which is a good proxy for end-user demand, in the European Union will be flat to up between 1 and 2 percent in 2014, versus Moody's expectation of a 1 to 2 percent decline in 2013.
The ratings agency also expects that capacity utilisation in the EU will remain at its current level, which Moody's estimates at about 75 to 77 percent, but that it will remain lower than the global average, estimated by the World Steel Association at around 78 percent 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 ratings agency expects that hot rolled coil prices will bottom out in 2014 after an 8 to 10 percent decline in 2013.
