Fitch Ratings Global Steel predicts negative consequences for the steel market

Fitch Ratings believes that modest growth in global steel demand and increased supply associated with earlier capacity investments will continue to weigh on the industry in 2020. While we expect a moderate recovery in the next 12 months, the impact that has already been seen on capacity utilization and margins, especially in Europe, and persistent downside risks, has led to a negative outlook for the sector. Downside risks are associated with geopolitical tensions and political uncertainty in some countries, as well as progressive environmental reforms in China, coinciding with a controlled slowdown in growth ambitions.

Metals companies continued to invest in capacity expansion and /or elimination of significant assets in 2017-2018, which were highly profitable for the industry. These capacity additions and upgrades began before trade tensions began to affect growth in early 2019. However, as economic conditions deteriorated in 2019, supply expansion is now outpacing demand growth. Many manufacturers have increased their exports to support production and counter weak domestic demand. But countries that are usually net importers, including the United States and some Southeast Asian countries, have expanded production and are also experiencing weak sentiment and lower economic growth.

Surplus stocks are looming large. Steel profit margins remain low and producers in some regions are currently evaluating capacity cuts. This is easier in regions with sufficient electric arc furnace capacity (eg North America) because the costs associated with idling are lower than those associated with a blast furnace. As a result, regulation is more complex and costly in Europe, where the share of EAF capacity is low. Although some production cuts have been made, CRU believes that even more is needed in Europe before profits can recover substantially.

Fitch Ratings expects major steel consumption industries in Western Europe to remain under pressure in 2020. The automotive sector is likely to see a decline in sales of new low-single-digit vehicles due to structural changes, including an uncertain pace of EV adoption and cyclicality. weak sides. However, we expect an increase in demand in construction and mechanical engineering. We project overall demand growth of about 1%, an improvement from the 4% decline projected in 2019. Trade tensions and uncertainty with Brexit exacerbate downside risks. Upward may come from�