S&P identifies silver lining for stricken European steelmakers

Jessica Morris
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The steel industry has been hurt in recent years by a chronic oversupply (Source: Getty)

Credit ratings agency Standard & Poor's has identified a "small glimmer of hope" which could suggest Europe's beleaguered steelmakers will emerge from the throes of a global crisis.

It took the industry's better performance in the second half as a sign it would be able to regain some balance and generate more sustainable profits. It's been hurt in recent years by a chronic oversupply at a time when demand for steel is slowing.

"A generally strong second-quarter performance for European steelmakers offers hope that they can generate more sustainable profits," it said today.

But S&P added that the sector's bleak outlook implied a one-in-three chance of a downgrade for Europe's key steel producers. This was due to ultralow steel prices, inventory reductions and structural overcapacity.

"We're seeing the possible end to the destocking phase in global carbon steel supplies, which has bolstered prices and profits in recent months," said S&P global ratings credit analyst, Gaetan Michel.

"While we remain cautious, acknowledging the sector's still high excess capacity and import threats, we think three factors could ease the industry's pain: the longer-term effects of restocking — supported by an improving rate in apparent demand growth — US and EU protectionist measures, and prospects for capacity rationalisation over the longer term."

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