Moody's Sees Negative Outlook For Steel Industry

NEW YORK (AP) — Moody's Investor Service on Wednesday offered a negative outlook for U.S. steel producers, saying they will continue to face challenging market conditions through the rest of the year.

During the fourth quarter, steel demand and prices began to decline as the world financial crisis continued to spread and economic conditions weakened. The impact of such economic deterioration, says Moody's, led steel producers in the U.S. to post broad-based losses in the span of three to fourth months.

The ratings agency said weakening demand has been seen among key steel-consuming industries like construction and automotive markets, but also among other markets like energy, power and appliances.

"While the velocity of the steel sector's downward spiral appears to have slowed amid signs of a nadir, we expect only marginal improvement in demand and utilization rates toward the latter part of 2009," said Carol Cowan, Moody's vice president senior credit officer, in a note to clients.

Cowan noted that as cost reduction programs begin to have an impact and lower raw material prices become effective, the negative impact on earnings should ease.

"Ratings in the industry remain at risk for additional outlook changes or downgrades given our expectation for continued earnings and cash flow pressure," says Cowan.

In the last six months, Moody's had downgraded, placed under review for downgrade, or changed outlook for the following: U.S. Steel Corp., ThyssenKrupp AG, ArcelorMittal, Severstal and Steel Dynamics Inc.