Asian steel companies to start the new decade on negative footing: Moody's

Moody's Investors Service on Tuesday said that its 2020 outlook for the Asian steel sector is negative, reflecting weakening profitability for rated steelmakers amid softening demand, declining steel prices and elevated iron ore prices which is a key input in finished steel products.

"The rated Asian steel producers are coming out of a challenging 2019 with profitability -- as measured by earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne -- down by around 25 per cent over the year. We expect the subdued operating environment will lead to another 5 per cent drop in 2020," said Moody's Vice President and Senior Credit Officer Kaustubh Chaubal.

"Fortunately, this follows strong growth in 2017-18. At the current rate, we expect profitability to return to levels seen during 2015-16. With improved capital structures, the steelmakers are better placed this time around to weather weaker profitability," added Chaubal.

Across the region, soft demand from the property and manufacturing sectors will limit Chinese steel demand growth. Over in South Korea, demand will soften because of sluggish construction and auto sectors, while the falling needs of the manufacturing sector will be the main driver behind Japan's softening steel demand.

Similarly, demand will slow in India because of weak auto and manufacturing sales.

Moody's expects US tariffs to have a limited impact on rated producers' sales, but the prolonged US-China trade disputes will have spillover effects through weaker macro conditions.

While the industry outlook is negative, reflecting the likely weakening in profitability, five out of the eight rated steel producers carry stable or positive rating outlooks, indicating that they are well-placed to manage the challenging operating environment.

The three steelmakers with negative rating outlooks all face weakening financial profiles, said Moody's.

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