European steel prices to stay low in the short term - Fitch Ratings

Fitch Ratings and CRU said that steel product prices in Western Europe fell in 2019 from their 2017-2018 peak and are likely to remain low by 2020. It was noted that “steel producers' margins have declined, but this may rise towards the end of 2020 due to capacity cuts and lower costs. The volatility of the metals sector is factored into the rankings of European steel producers, who usually manage to mitigate such external pressures by cutting costs.

Steel spot prices and margins were gradually declining in 2019 due to a combination of weak demand, affordable supply (the effect of production cuts has not yet had a significant impact on prices) and pressure on prices. Registrations in the automotive sector, one of the main consumers of steel, fell 1.6% year-on-year in January-September. At the same time, the steel market remains well-secured, in part due to the high availability of imports. Protective measures, including quotas and tariffs imposed by the EU in February, have only slightly reduced steel imports. The full volume of reported cuts in domestic production is yet to be seen, with most of the cuts planned for Q4 2019. Steelmakers' margins have been further constrained by persistently high raw material prices, which have only recently begun to decline.

Fitch Ratings and CRU noted: “We expect prices to remain low in the near future due to weak demand as the European steel market may continue to face challenges. Fitch expects further modest pressure in the European automotive sector, which will affect steel consumption. Despite potential growth in the auto sector in some countries, the French and German auto markets have recently hit cyclical highs and macroeconomic weakness in these countries is likely to affect auto demand. Brexit is likely to have a negative impact on vehicle sales in the UK. In addition, there remains great uncertainty about how the new EU emission targets will affect the supply of car manufacturers and consumer responses to electrified models. We expect slow growth in the construction and engineering sectors, which will vary geographically. "