Morgan Stanley: Our analyst Alain Gabriel believes that steel plate production in Europe is set to fall by 10% in the short/medium term, due to increased financing pressure, decarbonisation policies and sanctions imposed on Russian imports.
Returns for the sector in Europe have been lower (4.3% post-tax RoCE 2009-20) than expected over the last 10 years and Gabriel believes this has to do with a utilisation rate below potential. The closure of that 10% of capacity could improve this utilisation rate to the 75%-85% range that Gabriel believes is necessary for greater pricing power.
Domestic integrated steelmakers such as Arcelor Mittal would be best positioned for such a market environment. Arcelor still trades at a 50% discount to its historical multiple, continues to execute its buyback (only 42% realised) and has the growth vectors of AMNS India and Calvert.
