Analyst note: Steel industry's outlook dims

NEW YORK - Moody's Investors Service on Friday cut its outlook for steel to "Negative" from "Stable" because of weakened economic conditions, declining demand, falling prices and the industry's high costs.

The agency said steel producers will face increasing challenges in earnings and cash flow generation, which will endure for a number of quarters.

"With the stress in the global financial system, essential collapse in demand at this time and prices which have not yet bottomed, more negative pressure persists," Moody's said in a statement.

The outlook remains dim despite the fact that many producers, including those in China, have shuttered steel-making capacity to better match the reduced demand levels, the agency said.

Despite Moody's outlook, which covers the next 12 to 18 months and includes all global regions, shares of many steel producers rose in afternoon trading.

"Base metals have been targeted for short selling recently, which means they are increasingly susceptible to violent short-covering rallies, but the resultant higher prices are unlikely to be sustained for long so we favour selling into these for most metals," Barclays Capital analyst Gayle Berry said Friday in a note.

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