European steel markets face growing pressure

European steel markets are facing growing pressure from weak demand, market protectionism and persistently high prices for iron ore and coking coal, analysts at S&P Global said.

While steel capacity is currently being cut as ArcelorMittal announced production cuts of 4.2 Mtpa, this may not be enough to accommodate darker scenarios and more players can be expected to cut production. Elad Gelasco, director, credit analyst (commodities) at S&P Global Ratings, said at the webinar.

“The question is, will that be enough to adjust to the current weakness? ... We believe that this will not be enough to compensate for the weakness of the market, ”- said Gelasco.

Liberty Steel and US Steel have also announced production cuts at some European steel mills in recent weeks.

The European economic recovery is slowing, the auto industry is set to contract in 2019, and there is a potential relocation of car lines to Japan, Gelasco said, adding that friction is present in the ongoing trade negotiations between the US and Europe, especially in the auto trade. Steel demand in Europe will increase by only 0.3% this year, and in 2020 “the fragile recovery will be up to 1.2%,” he said.

In addition, there is “no evidence” that the European Commission's import protection measures are contributing to the European market, while the price hike for Co2 certificates is also problematic for steel producers, Gelasco said.

Prices in the European steel market have been under downward pressure for several months amid global overcapacity in steel and rising levels of imports, which have recently surged, accounting for nearly a quarter of market consumption.

“ArcelorMittal has limited headroom to accommodate softer scenarios,” Gelasco said. "However, ArcelorMittal's rating at BBB- /Stable has been maintained due to its commitment to debt reduction."