Moody’s has retained its stable outlook for Europe’s steel industry over the coming year, expecting continued growth in end-user markets and improving regional economic growth prospects to support demand.

“Sustained demand” is expected from the auto, construction and consumer goods industries, while stronger economic growth in Western Europe is also set to mitigate further price falls owing to cheap Chinese imports and oversupply in Italy, Moody’s says.

However, the high pressure on steel prices is a constraint on the outlook as low steel prices threaten profits, Moody’s notes. Low spot market prices for commodity grade hot rolled coil and cold rolled coil, which plunged in 2015 due to overcapacity, cheap imports and additional supply from Italy, are seen the biggest challenge for steelmakers in 2016. The agency sees prices falling further this year and then stabilising at low levels in 2016.

Cheap Chinese imports affect ArcelorMittal, SSAB, Tata Steel UK and smaller mills producing lower-grade steel, long products or semi-finished products such as Cognor. More specialised steelmakers, such as Ovako and Schmolz+Bickebnach, should be less affected. The trade protection measures and investigations of the European Commission into steel imports will help domestic steelmakers by reducing imports and directing demand towards domestic players, according to Moody’s.

Furthermore, European steelmakers’ profitability will be improved by ongoing efficiency drives, such as capacity and cost reductions, restructurings and others. “We think many European steel producers will be able to maintain or increase profits next year, provided prices do not fall further and imports slow down,” the agency says in a report sent to Kallanish.

Meanwhile, Moody’s outlook for Russian steelmakers is more negative. “The situation for steelmakers in Russia, which is in recession, is much weaker but sustainable,” it says. Manufacturing PMI has hovered around 48-49, indicating contraction, due to declining gdp and the weaker rouble's pressure on prices.

But Russian steelmakers are competitive in export markets and their average capacity utilisation has remained high above 80%. They are also less impacted by falling steel prices because their cost bases are typically lower than those of their European peers, Moody’s explains.

Demand prospects for the CIS are much weaker as construction – the largest end-user in Russia – is in decline. “One bright spot there is demand for steel pipes from large energy projects,” the agency concludes.