Ratings analyst Moody’s has prepared its outlook for the steel sector for next year.

Moody’s foresees a negative outlook for the European steel sector in 2020. The rating agency notes that the outlook could change only if fundamentals for the continent’s economy perform better than expected and margins for steelmakers improve further.

Moody’s expects the slower economic growth and persistent weak demand from key steel-using markets to continue to weigh on the sector.

The firm notes that particularly slow automotive demand will weigh on steelmakers’ capacity utilisation.

In addition to soft underlying demand indicators, trade tensions and Brexit uncertainty continue to be major risks for the sector. Moody’s also added that imports will continue to absorb a “… decent” share of the demand, though volumes have fallen in 2019 compared with 2018.

One of the biggest issues for the market will remain profitability of European steelmakers. “We expect steel spreads in Europe to remain at depressed levels with some potential for stabilisation or slight recovery during 2020. Profitability of steel producers will only gradually improve,” Moody’s says.

The rating agency lowered the outlook for ArcelorMittal to negative in November this year. The outlook is stable for thyssenkrupp it says, even though the steelmaker was downgraded slightly in August 2019.

RUSSIA

The agency meanwhile anticipates a stable outlook for the Russian steel sector in 2020, driven by a manufacturing PMI index of 50-55 supporting high capacity utilisation at 75-85%. Domestic steel demand will grow modestly meanwhile.

GDP growth will aid stability, but 2019-2020 growth it will be lower than the 2.3% achieved in 2018, at about 1.4-1.5%.

Moody's expects Russian producers' competitiveness in the export market and low imports to continue to support strong domestic capacity utilisation of around 80-85%. Demand will moderate however from the strong 2019 level, which was driven by one-off factors and is not sustainable, it says. The agency expects demand growth to slow to 1-2% in 2020, down from about 4-5% in 2019.