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Moody's lowers outlook for US steel sector to negative from stable

Moody's lowered its 12- to 18-month outlook on the U.S. steel industry to negative from stable, citing weakening economic indicators, falling steel prices and downward revisions in outlooks for the global manufacturing and chemicals sectors.

Increased prices for hot-rolled coil in the first half of 2018 were not supported by demand, but by supply concerns and market expectations of the U.S. imposing import tariffs, and the price has been deteriorating since the second half of 2018, according to Moody's.

Prices for steel scrap have also been declining, with Moody's analysts not expecting a recovery until early 2020 due to softening demand and high inventory levels.

A fall in U.S. auto sales, anticipated to drop to 16.8 million units in 2019 from 17.3 million in 2018, is also a factor in the lower steel outlook.

Steelmaking capacity utilization in the U.S. for the week ended Sept. 28 was 78.4%, marginally better on a weekly basis but down 2.2 percentage points year over year. Moody's does not expect utilization to pick up, given demand softening as well as a decision by U.S. Steel Corp. to idle two blast furnaces in the U.S. and one in Europe. Moody's expects the facilities to remain closed into 2020.

Meanwhile, steel imports are expected to further decrease due to low pricing, on top of restrictions related to tariffs and quotas, making it harder for international steelmakers to import to the U.S. and sell at a profit.

Overall, these factors are expected to keep downward pressure on steel prices in the short term, Moody's added.