Dec 12 - In its steel outlook published today, '2013 Outlook: U.S. Steel
Producers,' Fitch Ratings highlights end-use trends, industry characteristics
and producer profiles. Fitch expects further credit and operating improvements
for U.S. steel producers in 2013 although downside risks from global
Demand is slowly growing from the auto, energy, and heavy equipment
manufacturing segments, while construction has bottomed out. Fitch expects steel
demand to continue to grow albeit very slowly.
The U.S. steel industry is challenged by low capacity utilization (about 75% on
average in 2011) as a result of weak order rates. Margins are vulnerable when
capacity utilization is below 80%, especially in a rising/high raw material cost
environment. New capacity in flat-rolled steel may take upwards of 18 months to
be absorbed. Fitch expects average capacity utilization to rise but not to
exceed 80% on average in 2013.
The rising share of raw materials costs to total costs has narrowed the gap
between marginal and average costs. Producers expected to show a sustainable
advantage include those with raw materials integration, depending on the cost
position of captive capacity; producers with relatively high exposure to
value-added steel products given premium pricing; and producers with substantial
operating scale, which affords them the ability to temporarily curtail
production during lulls to reduce costs while serving customer demand.
The rating outlook for the U.S. steel industry is stable. Downside risks remain
from the slow pace of capacity rationalization. Should the U.S. enter
recession, destocking and very low capacity utilization could strain capital
Downside risks to growth expectations should result in conservative working
capital management and capital spending in 2013.