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2016 outlook for European steel sector remains stable on continued demand growth - Moody's
The outlook for the European steel sector will remain stable over the next 12 months as continued growth in the main steel using end markets and improving regional economic growth prospects will support steel demand in Europe, says Moody's Investors Service in a report, titled "Steel -- Europe and CIS: Stable Outlook Reflects Demand Growth but Constrained by Low Prices". However, high pressure on prices could lead to lower profitability prospects. The outlook for Russian steelmakers is more negative with the country in continued recession.
Hubert Allemani, a Moody's Vice President -- Senior Analyst and author of the report said “Our outlook for the European steel sector over the next year remains within our stable range as we expect sustained demand from the auto, construction and consumer goods industries. Brighter economic growth prospects in Western Europe are also set to mitigate further anticipated price falls as a result of cheap Chinese imports and oversupply in Italy.”
The Markit Eurozone Composite Output Purchasing Managers' Index (PMI) is between 50 and 55 (a level of above 50 indicates expansion) and the capacity utilisation rate for the region is within the stable range of 75% to 85%. These indicators are some of the factors Moody's uses to define a stable outlook and both are comfortably in the rating agency's stable range.
There are no signs that PMI would start to decrease to a level close to or under 50, even if the fallout from Volkswagen Aktiengesellschaft's (A2 negative) diesel emissions affair weighs on the German automotive sector and Germany's GDP in coming quarters.
The situation for steelmakers in Russia, which is in recession, is much weaker but sustainable. Manufacturing PMI has been around 48-49 (which indicates contraction) since December 2014 because of declining GDP and the weaker rouble's pressure on prices. However, Russian steelmakers are competitive in export markets and their average capacity utilisation has remained high above 80%. Falling steel prices have less of an impact for Russian steelmakers, because their cost bases are typically lower than those of their European peers.
Source : Strategic Research Institute