In comparison to the Asia outlook detailed in Part One, Moody’s European outlook continues to paint a dismal picture for the continent’s steel industry.
According to a press release quoting portions of the report, unfavorable fundamentals in steel’s key end-markets of construction, automotive and capital goods will lead to a second year of declining steel demand in Europe.
Moody’s expects it to be 2-4 percent lower than in 2012. Quoting Steven Oman, a senior VP in Moody’s Corporate Finance Group and author of the report, they forecast that hot-rolled coil prices in northern Europe will average EUR 500 per metric ton and rarely move above EUR 530 per ton over the next year.
As a result, Moody’s expects the profitability of many of the rated Western European steel companies to be moderately worse in 2013 than in 2012. However, there are considerable differences between the companies and the markets they serve, so their prospects will vary, the report said.
In fact, there is potential for two of the companies to register improved EBITDA in 2013: Kloeckner & Co. SE and Aperam S.A.
For the Asia region, Moody’s rates seven steelmakers: Baosteel Group Corporation (A3 negative), China Oriental Group Co Ltd. (Ba2 negative), Hyundai Steel Company (Baa3 negative), JFE Holdings Inc. ((P)Baa1 negative), Nippon Steel & Sumitomo Metal Corporation (A3 negative), POSCO (Baa1 negative) and Tata Steel Ltd. (Ba3 negative).
Credit ratings of these steelmakers, though, will remain under pressure because of their elevated leverage and the challenges that the Asian steel industry continues to face, such as shortages of iron ore supply, dwindling demand in some markets and falling prices.
Contrasting Europe’s market with Russia’s, Moody’s felt that the fundamentals for the Russian and the Commonwealth of Independent States (CIS) steel industry were more favorable. They expect domestic demand in those markets to be steady.
At the same time, Moody’s also expects the profitability of the Russian and CIS companies including NLMK (Baa3 stable) and Magnitogorsk Iron & Steel Works (MMK, Ba3 stable) to decline in 2013, albeit from higher levels.
Sohrab Darabshaw contributes an India perspective to MetalMiner.