https://www.engineeringnews.co.za
Automotive|Coal|Construction|Environment|Exploration|Gas|Iron Ore|Manufacturing|Oil And Gas|Oil-and-gas|Service|Steel|Operations
Automotive|Coal|Construction|Environment|Exploration|Gas|Iron Ore|Manufacturing|Oil And Gas|Oil-and-gas|Service|Steel|Operations
automotive|coal|construction|environment|exploration|gas|iron-ore|manufacturing|oil-and-gas|oilandgas|service|steel|operations

Moody’s cuts outlook for steel industries further

9th April 2020

By: Marleny Arnoldi

Deputy Editor Online

     

Font size: - +

Ratings agency Moody’s Investors Service already had negative outlooks for steel industries across the world, largely based on weak fundamentals in 2019, but the Covid-19 outbreak has made conditions worse and prompted the agency to cut the outlook for steel industries further.

Moody’s says the coronavirus outbreak exacerbates the already challenging operating environment for steelmakers around the world. The broad macroeconomic weakness spreading in the wake of the pandemic is driving down demand for steel in core industries such as manufacturing, automotive, construction and oil and gas exploration.

Moody’s had existing negative industry outlooks for the US, Europe and Asia, but has now also cut the outlook for the Russian and Brazilian steel industries to negative.

The agency’s macroeconomic board forecasts a global economic contraction for 2020, with recovery for the Group of Twenty advanced economies in 2021.

“For important steel-consuming countries, our forecast is for US gross domestic product (GDP) to end up being negative 2%, Euro Area negative 2.2%, China 3.3%, Brazil negative 1.6% Russia 0.5% and Japan negative 2.4%.”

In the US, the Federal Reserve has instituted a number of monetary policy and quantitative easing measures to stem the drop in overall liquidity, including buying investment-grade corporate debt, supporting new loans and secondary credit markets, among other initiatives.

However, Moody’s says speculative-grade companies are less likely to benefit from these initiatives.

The agency believes other countries may take similar measures; for example, the European Central Bank has announced an emergency bond-buying programme valued at €750-billion, or $820-million, and is busy considering other options.

Meanwhile, Moody’s says the automotive industry is seeing sales plunge. The agency’s automotive team expects global light vehicle sales to fall 15% this year, with US sales down at least 15%, Western Europe down 21%, Japan down 8% and China down 10%.

Oil and gas markets will experience a contraction, given the plunge in prices from both the stalled global economy and a dispute between Saudi Arabia and Russia over production levels.

Further, Moody’s points out that cancellations are very likely in the construction sector.

BRAZIL OUTLOOK

In the first two months of this year, steel production fell by 6.4% compared with the same period last year, while sales increased by 5%.

Moody’s expects both steel production and sales to fall in March and April, reflecting the coronavirus outbreak reaching Brazil.

“We expect Brazil's steel institute to revise its 5.1% steel sales growth forecast for 2020. The entity's original forecast also included 5.3% production growth this year, to 34.8-million tons, after a 9% decline in production in 2019.

“Profitability on domestic steel operations will remain weak on higher costs and limited ability to increase prices amid lower demand, the agency explains.

Moody’s anticipates international prices to fall in the global economic recession. The increase in Brazil’s currency exchange rate will help support local price parity with international steel prices, but weaker domestic demand will make price increases tough to implement.

A high exchange rate will also increase raw materials costs pegged to the dollar, such as iron-ore and metallurgical coal. Iron-ore prices rose substantially in 2019 on supply disruptions. Although down somewhat, prices remain around $83/t, which will continue to strain steelmakers’ margins.

RUSSIA OUTLOOK

Moody’s says that Russia’s purchasing managers’ index has been below 50 since May last year, translating into less demand for steel.

The slump in oil prices in March this year has hurt sentiment in key steel-consuming sectors in Russia.

Moody’s has lowered its estimate of Russia’s GDP growth for 2020 to 0.5% from 1.5% and therefore steel demand is likely to fall by between 3% and 7% this year, compared with a previous estimate of a 1% to 2% growth in steel demand for the year.

The agency says the fall of steel demand will depend on how long oil prices remain depressed and measures to contain the spread of Covid-19 in Russia.

Russia’s steel and its key end-user sectors continue to operate, which may help to increase the demand forecast for the year.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

Comments

Showroom

Weir Minerals Africa and Middle East
Weir Minerals Africa and Middle East

Weir Minerals Europe, Middle East and Africa is a global supplier of excellent minerals solutions, including pumps, valves, hydrocyclones,...

VISIT SHOWROOM 
Booyco Electronics
Booyco Electronics

Booyco Electronics, South African pioneer of Proximity Detection Systems, offers safety solutions for underground and surface mining, quarrying,...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.219 0.279s - 160pq - 2rq
Subscribe Now