Another tough year for steelmakers

by DASHVEENJIT KAUR/ pic by BLOOMBERG

REDUCED global steel demand in core industries as Covid-19 takes hold of steelmakers’ earnings in Asia, warned Moody’s Investors Service Inc.

“Our negative industry’s outlooks for the steel industries in Asia (since August 2019), the US (October 2019) and Europe (May 2019) all predate the Covid-19 outbreak and were largely based on weak fundamentals in 2019.

“The Covid-19 outbreak and spreading have made conditions worse and prompted us to cut the outlook for the Russian and Brazilian steel industries to negative as well,” it said.

According to Moody’s, the broad macroeconomic weakness spreading in the wake of the pandemic is driving down demand for steel in core industries like manufacturing, automotive, construction, and oil and gas (O&G) exploration.

Automotive, it said, is one of the most important end markets for the steel industry, and is seeing sales plunge.

“Our auto team now expects global light vehicle sales to fall 14% this year, with US sales down at least 15%, Western Europe (21%), Japan (8%), and China (10%), with growth returning later in the year.

“O&G markets, an important consumer of steel for drilling and pipeline development, among other requirements, will experience contraction given the plunge in prices from both the stalled global economy and dispute between Saudi Arabia and Russia over production levels,” Moody’s said.

Construction activity is also likely to slow further, with cancellations likely.

“For important steel-consuming countries, our forecast is — US GDP negative 2%, euro-area negative 2.2%, China 3.3%, Brazil negative 1.6%, Russia 0.5% and Japan negative 2.4%,” it added.

The agency, however, believes that government support may help soften the blow.

As the outlook for Asia remains negative, Moody’s said China’s demand is expected to continue declining and inventory to increase sharply.

Meanwhile, the demand in Japan will likely decline further in fiscal 2020 as these end-user industries’ face production and demand disruption with the spreading outbreak.

“In Korea, we expect domestic and export demand will fall significantly, reflecting lower auto production and sluggish housing construction.

“In India, we expect steel consumption to grow between 2% and 2.5% in 2020, largely in line with our GDP growth forecast for the country of 2.5%,” it added.