Indian steel demand to outpace Asian peers, says Moody's

Amid a gloomy outlook for the global steel industry, Indian companies are expected to do well as demand for steel is expected to rise, according to Moody’s Investors Service.

In a report titled “Steel Asia: Lower Earnings Keep Outlook Negative”, Moody’s has said “demand from India and southeast Asia will increase.” However, this will be insufficient to offset the decline in China, which accounts for about 70 per cent of Asian steel consumption. Chinese production will likely contract three-four per cent in the next 12 months.

Moody’s says Indian industry is expected to do well because of protection measures announced by the Union government. Jiming Zou, Moody's vice-president and senior analyst said, the profitability of Indian steel companies will be better than those of their regional peers “owing to rising domestic demand, minimum import prices and anti-dumping duties.”

India’s protectionist measures will also impact major producers in China and other countries, it said. Korean and Japanese steelmakers, too, will be hurt by export restrictions, while Japanese companies will continue to suffer from the strengthening of the Yen, the report said.

Some loss-making small or inefficient steel companies in China have suspended production, and supply-side reform is driving consolidation.

However, these will have a limited impact in the next 12-18 months, given declining demand and substantial overcapacity in China.

Moody’s said it would consider changing the outlook to stable, “if we  expect China's Purchasing Managers’ Index to stay above 50, indicating expansionary manufacturing activity, and Ebitda (earnings before interest, taxes, depreciation, and amortisation) per tonne of major Asian steelmakers to show signs of improvement in the next 12 months. Both factors would stabilise steelmakers’ earnings”.

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