Moody’s Investors Service on Thursday said it has revised its outlook for the global steel sector to stable on the back of recovery in demand worldwide. The agency had earlier cut the outlook for the global industry to negative.
Moody’s said it is changing “steel outlook” for all regions which include the US, Europe, Russia, Brazil and Asia to stable. Moody’s Senior Vice President Carol Cowan said the demand for steel is improving owing to resumption of production in important end markets and on a stronger global economic data, particularly in China. After shutdowns, production is now ramping up in the automotive and industrial sectors. Another factor contributing to demand is that the construction sector which is the largest consumer of steel worldwide, has remained resilient throughout the pandemic and even picked up in countries with infrastructure-focused stimulus programmes such as China.
Also, the operating conditions for steelmakers are expected to continue to improve over the next 12 to 18 months, barring a resurgence of the coronavirus, Cowan said. In May 2020, Prime Minister Narendra Modi announced a massive financial incentive for India, on top of the previously announced packages for a combined stimulus of Rs 20 lakh crore.
On capacity utilisation of players, Moody’s said the steelmakers’ capacity utilization is improving but the same remains well below pre-pandemic levels as the recovery lags in some regions and sectors. The Moody’s report further said in steelmakers’ key end markets, purchasing manager indexes (PMIs) are rising from low levels. While its macroeconomic board forecasts a 4.6 per cent contraction in G-20 economies in 2020, it also expects a 5.3 per cent growth in 2021. Many important steel-consuming regions will follow a similar pattern, with the exception of China, which will see a GDP growth of 1.9 per cent in 2020 and of 7 per cent in 2021.
For India, the agency said, “India’s steel consumption will contract by around 10 per cent in the 12 months to June 2021, from a year prior, largely because of an extremely weak June quarter this year amid the pandemic-led lockdown. Even so, the impact on rated steel-makers will be less severe because of their strong market positions, brand strength and competitive cost structures. “However, the possibility for second or third waves of virus infections or deeper economic costs than currently factored in pose downside risks to our current forecast of a 5 per cent-7 per cent increase in their EBITDA/per tonne.”
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