European apparent steel consumption will rise 1-1.5% on-year in 2015, driven by a continued recovery in the automotive and construction industries, which together account for over half the region's steel consumption, according to Moody’s. Regional steel prices are, however, seen remaining under pressure due to lower raw materials prices and a high level of Asia-origin imports.

European Union capacity utilisation is expected to remain at 75-80% in 2015, the range in which it has been so far since the year began. In contrast, World Steel Association data showed global capacity utilisation weakened to a historical low of under 70% last December, mainly as a result of slowing activity in China. It increased slightly to close to 73% in the first quarter.

"Despite falling European steel prices, steel used by the automotive industry and for mechanical engineering has been on an upward trend since the end of 2014 driven by better GDP growth prospects,” Hubert Allemani, vice president and analyst for European steel at Moody's, says in a report sent to Kallanish. Moody’s sees euro-area gdp growth at 1.5% in both 2015 and 2016, helped by the weaker euro and lower oil prices.

The credit rating agency says it has seen nothing that will change the current supply/demand dynamics since lowering in April its 2015 expectations for both iron ore and coking coal to $40-50/tonne. This is despite iron ore prices now rising to over $60/t.

The European Commission’s trade cases against Asia- and Russia-origin imports, meanwhile, “... should help the European market, in particular companies such as ArcelorMittal and ThyssenKrupp which produce CRC for the car industry and electrical steel, by limiting the rate of imports and giving manufacturers more pricing power”, Moody’s says. The investigations will not have a significant impact on Russian steel producers, whose exports are dominated by semi-finished products.

In Russia, the construction industry, which is responsible for about two-thirds of demand, is weakening due to high interest rates, falling real incomes and less-available credit.  It is also affected by the government's rationing of infrastructure spending prompted by the budget deficit. Overcapacity of long products from mills that were put into operation in 2013-2014 and the risk of rising imports if the rouble strengthens again to about RUB 50 per dollar are extra challenges. Russian demand is seen falling 10% on-year in 2015.

“However, Russian steelmakers' balance sheets are strong following a reduction in leverage and improved profitability of exports due to last year's 42% devaluation of the rouble against the dollar, and this will enable them to comfortably withstand these difficulties,” Moody’s observes. Domestic price hikes of 20-35% since December have created a premium of about $100-120/t versus export prices, and Russian steelmakers are running at almost full capacity for flats and 75-80% capacity for longs.