Steel Sector 'Slowly Growing, Says Fitch

December 12, 2012 6:03 PM EST Send to a Friend
It has been as sluggish year in the steel business. Shares of AK Steel Holding Corporation (NSYE: AKS), United States Steel Corp. (NYSE: X), and ArcelorMittal (NYSE: MT) have all underperformed the S&P 500. Sector ETF Market Vectors Steel ETF (NYSE: SLX) is down 2.5% YTD.

Looking forward, ratings agency Fitch sees demand slowly growing from the auto, energy, and heavy equipment manufacturing segments, while construction has bottomed.

"The U.S. steel industry is challenged by low capacity utilization (about 75% on average in 2011) as a result of weak order rates. Margins are vulnerable when capacity utilization is below 80%, especially in a rising/high raw material cost environment. New capacity in flat-rolled steel may take upwards of 18 months to be absorbed," said Fitch.

Fitch expects average capacity utilization to rise but not to exceed 80% on average in 2013. Producers expected to show a sustainable advantage include those with raw materials integration. Should the U.S. enter recession, destocking and very low capacity utilization could strain capital structures.

The rating outlook for the U.S. steel industry is stable.

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