-- European steel industry likely to face more capacity closures
over next 12 months due to falling global steel demand
-- Europe's top three steelmakers already taking steps to curb
steel production
-- Fitch expects steel production to fall 2%-3% in 2012 in
developed markets
By Alex MacDonald
LONDON--The European steel industry is likely to face more
production capacity closures over the next 12 months due to falling
global steel demand, credit ratings agency Fitch Ratings said
Tuesday.
"The steel sector outlook is negative and worsened further in
the first half of 2012, with demand conditions likely to remain
muted into 2013 and lingering production overcapacity to persist
over this period," the agency said in a statement.
Fitch Ratings' comments echo views of other European steel
executives who have also said the European steel industry is
suffering from excess production capacity and anemic demand.
Wolfgang Eder, chief executive of Austrian specialty steelmaker
Voestalpine AG (VOE.VI) and also chairman of the European steel
association or Eurofer, said the European Union's steel industry is
facing about 50 million tons of excess steel production capacity
based on a total European Union steel production capacity of about
210 million tons to 215 million tons.
Europe's top three largest steelmakers, ArcelorMittal (MT), Tata
Steel Ltd (500470.BY ), and ThyssenKrupp AG (TKA.XE), are already
taking steps to curb their production capacity with the first two
planning to only restart blast furnaces that are due to be closed
for routine maintenance if demand picks up.
"We expect anemic economic growth across western Europe over the
next 12 months, which will translate into negative steel production
growth in developed markets of between 2% and 3% in 2012," Fitch
Ratings said in a note. "Decreased revenue and cash generation in
2012 is likely to limit steel companies' ability to significantly
deleverage, maintaining negative rating pressure over the next
12-18 months," it added.
In ArcelorMittal's case, it expects the steelmaker to continue
reducing production capacity to combat low capacity utilization
rates and falling earnings before interest, depreciation and
amortization, or Ebitda, margins.
"Higher-cost production facilities in western Europe may be
idled or closed permanently in an effort to rebalance steel supply
and demand conditions," Fitch said. "Plant closures will aid in
reducing costs (albeit with some time lag), and will boost
medium-term profitability," it added.
Fitch said that steel prices are likely to remain depressed
until the end of 2012 due to bearish macro-economic conditions in
developed markets, most notably in the euro zone bloc of 17 member
states.
At the same time, raw material input costs, most notably prices
for iron ore, a key ingredient used in steelmaking, are forecast to
remain around current levels due to stead demand from China, the
world's largest consumer of the steelmaking ingredient.
"Iron ore prices have not reduced to the same extent as steel
prices, driving expected margin erosion for non-integrated steel
producers in 2012," it added.
-Write to Alex MacDonald at alex.macdonald@dowjones.com
