Moody's: Stable outlook for Asian steelmakers in 2018, due to steady profitability

Moody's Investors Service says that its outlook for Moody's-rated steel companies in Asia through 2018 is stable, because profitability will be steady during this period, after improving significantly in 2017.

"The likely stable profitability for Asian steelmakers that we rate is underpinned by the removal of excess steel-production capacity in China and broadly steady demand in Asia as a whole," says Kai Hu, a Moody's Senior Vice President.

Moody's says that steel production capacity in China will continue to decline, due to the Chinese government's supply-side reforms and environmental protection measures; factors which will reduce the supply glut in Asia.

Moody's explains that China drives the outlook for steel companies in Asia because the country represents the region's largest steel consumer as well as producer.

"Overall steel demand in Asia will remain stable, with robust demand growth in South and Southeast Asia, and flat growth in China," adds Hu.

Moody's report says that the stable outlook for steelmakers in Asia also reflects China's purchasing managers' index, which remains above 50, indicating increased manufacturing activity; a situation which is positive for steel demand.

A likely slowdown of contracted sales in China's property sector will have only a limited effect on overall demand and industry fundamentals over the next 12 months, because the strong contracted sales since 2016 will support new construction starts and steel demand over the next several quarters.

Moody's report also says that among major steel-producing Asian countries operating conditions will be the most supportive in India, because of robust domestic demand and protectionist measures, and despite an increase in raw material prices and new capacity.

Domestic demand will prove steady in Japan and Korea, which, together with the steelmakers' efforts to cut costs and increase production of premium products, should keep earnings for companies in these two markets higher when compared with the levels seen in 2015-16.

Powered by Capital Market - Live News