Fitch: Commodity Recovery, Not Trade Cases, Key for US Steel
By Business Wire News
By Business Wire News
Recovery in commodity prices has more importance to the steel industry than the impact of trade cases, according to Fitch Ratings.
The US International Trade Commission is currently investigating accusations made against Chinese steelmakers by U.S. Steel Corp. This follows recent determinations on antidumping and countervailing duties on cold rolled steel and corrosion-resistant steel. We believe that overall steel volumes remain vulnerable absent recovery in commodity prices, although energy and machinery and equipment each account for only 10% of steel shipments.
The market share of steel imports has been declining with the advent of trade cases, which has allowed prices and capacity utilization to increase but both remain below 2014 average levels. Fitch believes steel producers leveraged to autos and construction will benefit more from the improved price environment than producers leveraged to energy and machinery and equipment.
Since the slide in oil, mineral and agricultural prices, steel demand for related equipment and oil country tubular goods has plummeted. Caterpillar reports retail sales for the three months ended April 30, 2016 for machinery to the oil and gas industry down 34% and to the North American resource industry down 21% compared with the same period of the prior year. This follows declines in 2015 from 2014 of 29% for machinery to the oil & gas industry and 38% for machinery to the North American resource industry. John Deere expects US and Canada agricultural equipment retail sales to be down 15%-20% in fiscal 2016 relative to fiscal 2015 and Joy Global reported an original equipment backlog for Jan. 29, 2016, down more than 36% compared with Jan. 30, 2015.
Construction accounts for about 40% of steel shipments and automotive accounts for a further 26%, according to American Iron and Steel Institute. Since the global financial crisis, construction has been recovering and automotive demand has recovered and is holding its own. However, US steel consumption fell 10.6% in 2015 compared with 2014, according to Worldsteel, and Fitch calculates steel consumption fell an additional 6.6% in the first three months of 2016 compared with 2015.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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