Stable outlook for European steel industry

The outlook for the European steel industry is stable, reflecting the rebound of prices and volumes in recent months, as well as continued strong demand from China, Moody's Investors Service said in its latest Industry Outlook report for the sector. The outlook also factors in the fragility of the economic recovery in major markets and the difficulty in forecasting demand for steel.
"The stable outlook reflects that as of the end of May 2010, capacity utilisation in the European steel industry seemed to have peaked, with most European plants running at full capacity, predominantly driven by restocking effects and seasonality of demand," said Matthias Hellstern, author of the report. "Steel prices also seem to have peaked, predominantly driven by recent strong demand."
In the report, Moody's said that it expects end-user demand for steel from the construction industry to remain weak for the next 6-12 months. Similarly, among auto manufacturers (the other major steel consumers in Europe) demand is likely to weaken again in H2 2010 following a resurgence in production in the first half.
"If end-user demand does not pick up, there is a risk of overcapacity in all steel markets. This could lead to price pressure in the medium term and the need for additional restructuring measures," Hellstern cautioned.
Moody's believes that H2 2010 will show a weakening trend, which, together with positive developments — perhaps a more robust recovery than expected – in H1 2010, should lead to an overall stable environment for the industry in the next 12-18 months.
"However, 2011 will be a critical year for the industry given the still fragile economic recovery in the major mature markets and limited visibility for further development in demand for steel," Hellstern added.