The steel sector is expected to remain stable driven by continued demand from key industries, but protectionist US trade policies pose a threat to European producers.
Ratings agency Moody's outlook on Europe's steel sector to 2018 warned that if President Donald Trump drove the US to place restrictions on imports of steel, it would be likely to "create ripples, currently difficult to quantify but potentially large, in the global market".
The move would limit European steelmakers' access to one of their largest export markets. In 2016, the US was the third-largest destination for European steel exports, making up about 14 per cent of total export volumes from the EU. Outokumpu and ArcelorMittal were at the highest risk.
Moody's added apparent steel consumption in Europe is expected to grow around two per cent in 2017, broadly in line with its euro area GDP growth forecast of 2.1 per cent, and at a slightly lower pace of around 1.5 per cent in 2018.
Prices are set to be buoyed for the next 12 to 18 months above 2016 levels thanks to demand growth, sustainably higher raw material prices and anti-dumping duties that allow EU steelmakers to defend domestic prices against cheaper imports.
Mergers and acquisitions accelerated this year with two major deals from ArcelorMittal and Thyssenkrupp - which agreed to combine its European operations with Tata Steel's in September. Moody's said sector consolidation was unlikely to translate into immediate capacity cuts.
Moody's steel outlook has been stable since April 2017, but it could be revised to positive if the Eurozone's manufacturing purchasing managers' index (PMI) exceeded 55 for at least three consecutive months. It could be moved to negative if Moody's was confident that the PMI would fall below 50 for three consecutive months.