Global growth in steel demand and production is expected to slow during H2 as developing nations fight inflation and developed countries tackle fiscal instability, Fitch Ratings said in a statement.

A positive result from lower growth expectations is slowing capacity addition, Fitch said, adding that global average capacity utilization is at 81%.

Tight supply of low-cost iron ore and metallurgical coal will persist into 2013, resulting in raw materials prices that should exceed 2010 levels for the period.

Attractive returns on iron ore and metallurgical coal projects, as well as the benefits from backward integration for steel producers, should continue to drive M&A activity.

Producers that are expected to show a sustainable advantage include those with raw materials integration depending on the cost position of captive capacity; producers with relatively high exposure to value-added steel products given premium pricing; and producers with substantial operating scale, allowing for temporary reductions in output during lulls to reduce costs while serving customer demand.

Fitch expects mining and metals producers to remain disciplined during the recovery and to not stretch their investment targets or capital structure in order to lessen systematic risk and geopolitical risk.

The outlook for the global steel and steel raw materials industry sectors is stable, with an expectation that the recovery for steel will stretch into 2013.

Fitch is also anticipating a soft landing for China and a slow economic recovery for developed nations.

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