Moody's Negative on U.S. Steel Industry for 2016 as Weak Demand Seen Continuing (X) (AKS) (STLD)

The US steel industry continues to face a variety of headwinds, ranging from weak demand to the under-utilization of capacity, says Moody's Investors Service. This is driving a negative outlook for 2016.

While demand for steel from automakers is expected to remain relatively robust, and be modestly higher in the construction industry, it won't be strong enough to offset the slump in demand from other industries. The oil, gas and mining sectors, in particular, have been hurt by falling commodity prices.

Demand for mining equipment is expected to remain weak as the industry continues to reduce exploration and cut spending on developing new mines. The sharp drop in oil and natural gas prices is also hurting steelmakers, such as US Steel (B1 negative) and Evraz North America Limited (B3 negative), that make pipes and other equipment for this sector.

As a result of waning demand, capacity utilization in the US steel industry fell to 71 percent in 2015 from 77.5 percent a year earlier, and is expected to remain weak in 2016, according to the report "US Steel - Industry Conditions Remain Weak;

Downside Risks Linger."

"Even at lower production levels, we expect global production to continue to exceed demand and overcapacity to remain an issue," said Michael Corelli, a Vice President and Senior Credit Officer at Moody's. "To return to a more robust profitability level, the US steel industry needs to run at materially higher utilization levels, and that is not likely to occur in 2016."

Falling input prices are also continuing to weigh on steel prices. Iron ore prices remain volatile as supply exceeds demand. This is an imbalance that Moody's expects to remain into at least 2017. Coal prices have also slumped and will likely remain low.

The report is available to Moody's subscribers at

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1017785

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