Moody’s: US steel outlook changing to positive on strong fundamentals

The 12 to 18 month outlook for the US steel industry has changed to positive from stable, Moody’s Investors Service says in a new report.

“Improved demand levels from 2017 are proving sustainable in 2018,” says Carol Cowan, Senior Vice President at Moody’s Investors Service. “Capacity utilization will range between 73% and 77%, which is below our 80% threshold for a positive outlook, but we expect continued improvement as markets remain strong and import levels start to recede following final rulings on Section 232 import tariffs and exemptions.”

Meanwhile, the Institute for Supply Management’s Purchasing Managers’ Index (PMI) stands at 57.3 in April and has stood above 55 since 2017, indicating solid economic growth. A US PMI reading exceeding 55 for at least two consecutive months is another one of Moody’s triggers for a positive US steel industry outlook.

Steel prices will remain at levels that allow producers to achieve solid profitability and cash flow generation, adds Cowan, although they may be approaching a peak. Moody’s expects hot-rolled coil (HRC) prices, which currently stand at about $880/ton, to average between $725/ton and $800/ton for the year.

Moody’s says that import levels were high through April, despite favorable trade-case rulings, as companies aimed to get product in before the original May 1 deadline (extended to June 1) for the 25% tariff on imported steel to be imposed. However, import levels should significantly recede in May.