In their latest Worldwide Steel Outlook, Fitch Ratings provides a relatively optimistic forecast for the global steel industry.
Despite capacity growth in China outstripping consumption growth, Fitch paints a rather benign picture for developing market steel:
“Pricing should continue to be constrained by excess capacity and cost pass through could be challenging in the second half of 2010. Excess or below cost production should be limited.” Ms Monica Bonar senior director at Fitch said “With capacity utilization in most regions above 70%, steel producers are better able to manage profitable production and prudent investment. Producers with raw materials integration should do relatively better given the rebound in raw materials prices.”
Fitch believes that “Producers with relatively high exposure to value-added steel products should benefit from premium pricing and those with substantial operating scale, which can afford the ability to temporarily curtail production during lulls to reduce costs while serving customer demand, should also show sustainable advantage.
The challenge will come for producers in austerity-struck developed nations:
Producers with relatively high exposure to construction in some developed countries will be disadvantaged as a result of credit or fiscal induced austerity spending levels over the next 18 to 24 months.”
Overall, Fitch believes first half results for most producers will be decent, benefiting from price hikes more than any penalty from rising costs.
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