October 14, 2008

Moody forecast stable outlook for US steel industry

Moody's Investors Service said that the outlook for the US steel industry remains stable, with strong demand and pricing.

Ms Carol Cowan analyst in a note to investors said that "Strong overall global demand has supported pricing in every region throughout 2007, with China again providing tremendous support for global steel consumption. Demand in the US has also remained solid, despite weakness in the appliance and automotive markets, largely driven by high levels of commercial construction activity."

Ms Cowan added that the housing market is not a significant driver for steel consumption, but ongoing weakness in that sector could undercut demand across some end markets.

She said that "Further deterioration in the overall US economic environment could cause slowing demand during the course of 2008. In particular, Moody's anticipates weakness in steel destined for the appliance, automotive and residential construction markets.”

Ms Cowan noted Moody's upgraded more steel companies worldwide in 2007 than in previous years 16 through the end of November compared with four in 2006. The analyst wrote that "The highest number of upgrades occurred in the US, with seven upgrades affecting six companies. Much of the driving force behind the upgrades has been the material improvement in margin performance, debt protection metrics and credit profiles, a result of the very strong underlying conditions in the steel industry over the last four years."

Moody's expects global consolidation will benefit the industry in the long run. But Ms Cowan thinks steel companies will show production discipline and financial health through a stretch of weak demand and pricing before they see sustained positive ratings momentum.