Sustained demand, higher year-over-year profits and the success of antidumping measures should support European steelmakers, according to a new report.
In a report for its clients, ratings agency Moody's said the current operating climate underpins the 'stable outlook' for the sector into 2018
It expects that steel demand from the auto, construction and capital goods sectors will grow in 2018, with apparent steel consumption expected to grow 1.5% in 2018, broadly in line with the agency's 1.9% GDP growth forecasted for the European Union.
"Anti-dumping measures against a number of countries, including China, will strengthen European steelmakers' pricing power into 2018.
"However, steel imports into the EU will continue to rise moderately despite tariffs as countries outside the tariffs' scope continue to export steel into the EU," Moody's added.
Steelmakers' operating profitability will be supported by high spreads, as well as utilisation rates at the upper end of Moody's 75%-85% range for a stable outlook and ongoing cost savings. Higher profits should enable steel manufacturers to further de-lever.
Gianmarco Migliavacca, senior credit officer and author of the report, said: "Our 2018 outlook for the steel sector in Europe is stable on the back of expected growth in steel demand from the construction and auto industries.
"Economic expansion, as signalled by the sustained improvement in Europe's PMI, and rising profitability, as steel spreads widen, are also key supporting factors for our stable outlook."
Elsewhere, in its report, Moody's said mergers and acquisitions in the sector are likely to rise on the back of higher valuations in a more stable market. "However, current oversupply is unlikely to shrink until further consolidation had occurred. Indeed, capacity is unlikely to fall in the next 18-24 months despite ArcelorMittal's purchase of Ilva and thyssenkrupp's joint venture with Tata."