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Moody's upgrades Asia steel industry outlook to stable from negative

Operating conditions in India seen as the most supportive over robust demand, protectionist measures

Aditi Divekar  |  Mumbai 

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Moody's Investors Service has revised its outlook for the Asian industry from negative to stable on an expectation that profitability will remain steady.

"We expect profitability of our rated Asian companies – measured by Ebitda (earnings before interest, tax, depreciation and amortisation) per tonne – to remain stable in the next 12 months, following a significant improvement that began in the second half of 2016," said Chris Park, an associate managing director.

The removal of excess capacity in and the broadly steady in the region will be the main drivers of this profitability, explained Park.

A stable outlook also reflects the state of China's Purchasing Managers' Index (PMI), which remains above 50, indicating a slight increase in activity in China, the world's biggest market, said the ratings agency.

The Asian industry's profitability has increased since bottoming out in 2015 and the improvement in 2016 was led mainly by a recovery in industry fundamentals in China, resulting from a 2.3 per cent growth in apparent (less net exports) and a higher-than-expected reduction in capacity. Moody's notes that China's capacity will continue declining because the government's supply-side reforms and environmental protection measures are forcing inefficient mills to close and major producers to merge.

Asian will also remain stable with robust growth in South and Southeast Asia, alongside GDP growth, and stable in We expect China's apparent (less net exports) to increase around 2.5 per cent this year and be flat in 2018, said the release.

Contracted sales in China's property sector are expected to see a slowdown over the next 12 months because the government has tightened policies since September 2016 but the effect on will be fairly modest. This is because the strong contracted sales evident since 2016 will support robust growth in new starts and over the next several quarters.

Among major steel-producing Asian countries, operating conditions in will be the most supportive owing to robust domestic and protectionist measures. Regarding and Korea, domestic will stay steady, which, along with steelmakers' moves to cut costs and boost of premium products, should keep their profitability stable or slightly higher. On the other hand, Chinese steelmakers' profitability will decline slightly in 2017 following a strong second half in 2016.

First Published: Fri, August 18 2017. 02:21 IST