Moody's 2013 Steel Demand Forecast for Europe, Asia: Not So Hot

It’s a study in contrast — two different steel markets, two different outlooks, both a reflection of the times we live in.

Last week, Moody’s Investors Service, a well-known credit ratings research and risk analysis firm, released its outlook for the steel industry for two different parts of the world – Asia and Europe.

Building upon its July outlook, Moody’s has labeled the outlook for Asia as stable. But for Europe, well, that’s a different story altogether.

Check in with MetalMiner later this morning for Stuart Burns’ commentary and analysis on the European steel market.

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According to Moody’s prediction, European steel companies’ profitability is likely to deteriorate in 2013, much of it due to continuing weakening of demand and prices.

So, Moody’s outlook for the European steel market continues to be negative; this is more of the same after a similar Moody’s outlook six months ago.

News agencies and other publications reported that unlike the European market, Moody’s decided to stick with its ‘stable’ outlook for the Asian region because it expected the demand for steel to somewhat pick up — not much, but at a modest pace — in the months to come.

Moody’s tracks two key indicators while drawing up the outlook: China’s manufacturing PMI and the projected EBITDA per ton for major steelmakers in Asia.

While releasing the report, titled “Outlook Update: Asia Steel Industry — Modestly Rising Demand Will Alleviate Challenging Conditions,” Chris Park, Moody’s vice president and senior credit officer, said the supply/demand imbalance for steel in China, which accounts for over 70 percent of total steel production and consumption in Asia, was a key reason for the steel industry’s weak fundamentals in the region.

But as consumption rose modestly and capacity addition slowed, the imbalance could be evened out in 2013, he added.

It is no secret that China’s steel demand touched rock bottom in the third quarter of 2012. Moody’s expects this to increase between 2 and 4 percent, year-on-year, in 2013. There’s also the off-chance that steel demand would also be propelled because of some recently approved infrastructure projects and a rise in China’s exports.

Hidden in the report were some more pieces of good news for Asian steelmakers. Moody’s said that the profitability of Asian steelmakers would improve moderately in the next 12 months.

Of course, profits will not be comparable to the kind enjoyed historically, but Moody’s expects EBITDA per ton for the major Moody’s-rated Asian steelmakers to increase anywhere between 5 and 10 percent in 2013. Profits are expected to have declined by the same percentage in 2012.

Continued in Part Two.

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