TEXT-Fitch:Eurozone weakness to depress steel for another year

Tue Dec 11, 2012 4:18am EST

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(The following statement was released by the rating agency)

Dec 11 - Western European steel output is unlikely to recover in 2013 due to depressed demand levels across the eurozone. Steel volumes will probably fall by up to 3%, Fitch Ratings believes, putting pressure on producers' profitability and free cash flow generation. However, profit margins may be supported by the falling cost of raw materials.

Construction activity is the weakest area while demand from automotive manufacturers and mechanical engineering may increase towards the end of 2013. This lacklustre demand means prices are likely to remain flat through the year.

Steel demand in the non-residential construction sector is likely to drop 5-10% because of deferrals and cancellations of public infrastructure projects and constrained financing for private construction. Renovation work will partially offset this weakness, but the market is largely driven by new construction.

In autos and mechanical engineering, any increase in demand is likely to come from the export sector. The poor performance of the domestic autos market means we are expecting a fall of 2-3% in steel demand, but the export orientated premium car manufactures could turn that into net year-on-year growth towards the end of the year.

Export orders could produce a 1-2% increase in demand for steel for the mechanical engineering sector. Demand is now starting to weaken after being the strongest area for EU steel producers between Q310 to end-2011 driven by exports from the German Mittelstand.

For the full analysis, see 2013 Outlook: Western European Steel at www.fitchratings.com.

Link to Fitch Ratings' Report: 2013 Outlook: Western European Steel

here

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