Steel Industry Outlook Turns Negative

The ratings agency does not specify individual companies, but it’s no secret that U.S. steelmakers like United States Steel Corp. (NYSE: X), AK Steel Holding Corp. (NYSE: AKS), Nucor Corp. (NYSE: NUE), and Steel Dynamics Inc. (NASDAQ: STLD) have fallen on hard times since the beginning of the year.

Moody’s also cites imports as a continuing risk to demand for U.S. steel. In the first eight months of the year, steel imports to the U.S. have risen by 18% year-over-year. Steelmaker Schnitzer Steel Industries Inc. (NASDAQ: SCHN) fired 300 workers a month ago citing rising inventory costs as the main cause of the decision.

Moody’s said that it could raise the industry’s rating back to ‘stable’ under certain conditions:

[I]f the PMI index were to move above 50 for at least two consecutive months and capacity utilization consistently tracked between 75%-80% … A steady PMI reading above 55 and expectations for sustained capacity utilization above 80% could lead to a positive outlook.

Capacity utilization is now above 70%, growth peaked in April and has been slowing ever since. The August PMI reading was 49.6 has been contracting for three consecutive months. A return to a more generous outlook for the steel industry appears doubtful for the near future.

Paul Ausick