Steelmakers Stare At Bleak Outlook Amid Global And Local Worries

Steelmakers around the world are facing a bleak outlook as trade war risks escalate and economic slowdown becomes prominent.

While some companies pared their profit forecasts for the year, the world's biggest steelmaker trimmed its 2019 forecast for global steel demand.

ArcelorMittal SA scaled down its global steel consumption growth for 2019 to 0.5-1.5 percent from the earlier guidance of 1-1.5 percent based on the current economic outlook and global growth so far this year. “Global overcapacity remains a clear challenge,” it said in a statement. “We have reduced capacity in Europe in response to the current weak demand environment, which has also impacted the turnaround of facilities in Italy.”

Japan's Nippon Steel Corp. tumbled the most in over eight years after forecasting a 56 percent drop in profit in the year through March 2020, as surging iron ore prices and slumping demand in Asia erode its margins. The steelmaker said in a statement that it scaled down the forecast also on a prolonged U.S.-China trade war, among other factors.

Japan's third-biggest steelmaker, Kobe Steel Ltd., too, slashed its recurring profit forecast for 2019-20 by 67 percent as U.S.-China trade tensions battered demand from the automobile sector.

All this suggests increased pressure for the steel industry across the globe.

How Indian Companies Fare

Commentary by India's largest steelmaker spooked investor sentiment, leading to rating cuts by brokerages. JSW Steel Ltd.—whose profit for the quarter ended June fell by over half—said softer public investment spend due to the general election and weaker sentiment on account of slowdown in the automotive and consumer durables sectors has impacted Indian steel demand.

Tata Steel Ltd., too, listed a slowdown in the automotive sector, slower spends and liquidity problems as significant headwinds for the sector. That apart, it said rising cost pressures necessitated by expensive iron ore imports following supply disruptions in Brazil and Australia and elevated coking coal prices as other constraints.

Both the steelmakers hope the second half of the current fiscal would be better, which will depend on revival of construction and automobile sectors. Indian steel hot-rolled coil prices have fallen for the eighth straight week, declining nearly 45 percent.