Severstal's positive outlook

Russian vertically integrated steelmaker and mining company Severstal believes global steel demand is slowing from 1.9% in 2019, up from a previous estimate of 2.1%.

Overall, despite sharp declines in demand in some areas, reduced production in China and continued growth in global demand will see the global capacity utilization return to 78% for the first time this year.

While a significant slowdown in demand in Turkey this year has had an impact on some of the relevant markets and manufacturers, Severstal has managed to redirect the majority (66%) of its exports to the Northern and Central European markets, with 15% being sold in the CIS, 11% in the Middle East, in North Africa and Turkey, 4% in NAFTA and 2% in Latin America and Asia.

Increasing protectionism and trade restrictions associated with US Section 232 import tariffs remain a major concern and allow for market fragmentation with sharp price fluctuations. Severstal believes it is well positioned for weather conditions, as it has the lowest of all EU export duties and the EU export duty.

But the domestic Russian market continues to disappoint, with demand growth estimated at 1% in 2018-2019, while GDP, industrial production and consumption will decline in 2019.

In 2019, Severstal predicts a recovery in demand for the construction industry after falling -2% in 2018. Automotive demand will grow 5% in 2019, up 9% this year, while heavy machinery demand will fall -4% in 2019, up 7% in 2018. Demand from large diameter pipe manufacturers will increase by 10% next year, after increasing by 15% in 2018.

Severstal says Russia will be able to undergo slow 1% annual growth over the next five years, but it will accelerate beyond 2023 amid massive government spending on infrastructure projects and demand from the energy sector.