Global steel demand will recover at a "modest pace" over the next 12-18 months and won't reach peak levels anytime soon, according to a report issued yesterday by Fitch Ratings.

In addition, the research and credit ratings agency says in the report, seen by Steel Business Briefing, that pricing likely will be "constrained by excess capacity, but raw material cost increases are expected to be passed through."

"Steel producer earnings were severely affected over the last year, but most companies rated by Fitch improved their liquidity through cost reductions, working capital management, dividend reductions and credit facility amendments," Fitch director Monica Bonar said. "These measures should serve well over this period of slow recovery, and financial leverage should decline over the year. Ratings remain under pressure given the severity of the downturn and limited visibility on the recovery."

Among the key themes Fitch expects to see in 2010 is excess Chinese production limiting price appreciation. "Excess production would pressure weak domestic markets in Europe and North America or exports from Russia and Brazil," the company said.

A rebound in production from China is also driving up raw materials prices, which Fitch says could be 15-20% higher next year than in 2009, SBB notes.

 

Steel Business Briefing, 16th December 2009