Steel stocks slide on Moody's negative outlook

Steel stocks declined after Moody's changed outlook for Asian steel producers to negative on weakening profitability.

Jindal Steel and Power (JSPL) (down 7.65%), Steel Authority of India (SAIL) (down 5.49%), Tata Steel (down 3.83%) and JSW Steel (down 2.72%) declined.

The S&P BSE Metal index was down 3.49% at 8,263.29. It underperformed the Sensex, which was down 0.94% to 37,287.05.

Moody's Investors Service said in a report on Wednesday that rising input costs and an inability to pass on higher costs to customers is pressuring the profitability of Asian steel producers, and has as a result revised its outlook for the sector to negative.

Prices of iron ore and coking coal, two key steel-making inputs, have surged by more than 60% and 20% in the year to June 2019 and will likely stay high for some time. At the same time, weak demand in end-markets is limiting the ability of producers to pass on these prices increases to customers, resulting in narrowing product spreads.

"India's steel demand will remain the strongest in Asia but slow to mid-single-digit growth, as weak auto and manufacturing demand offsets demand growth in the infrastructure and construction industries," adds Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer, and co-author of the report.

Meanwhile, limited new capacity additions across the region will curb a sharp decline in steel prices, with production up only in India, where demand is still growing, and flat in China, Korea and Japan.

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