SAIL, JSW, Tata Steel to have better year ahead: Moody's

Capacity expansions and higher utilisation will lead to rise in profitability

Domestic steel majors such as SAIL, JSW Steel and Tata Steel will have a better year ahead on the back of capacity expansions and higher utilisation, leading to rise in profitability, global ratings agency Moody's said today.

"Capacity additions and high utilisation rates at existing plants will boost profitability for large Indian producers such as JSW Steel, SAIL and Tata Steel," it said in its Asian steel industry outlook for the next year.

Stating that the profitability of the Asian steelmakers had bottomed out, Moody's Investors services said their profitability would increase slightly in 2015 as capacity growth slows, unlike major Indian firms, and utilisation rates rise.

"Demand for steel will likely increase a modest 3%, outpacing net production capacity additions and driving increased utilisation rates. Declining raw material costs will also support the steelmakers' profitability," said Jiming Zou, Moody's Assistant Vice President and Analyst.

The agency, which accords a stable outlook for the industry, said steel demand and capacity growth in China would drive the outlook, as the country is by far the region's largest consumer and producer of steel.

"But the country's steel producers remain the least profitable in Asia because of domestic oversupply," it said, adding, however, that conditions for steelmakers vary across Asia.

Moody's expects leading Chinese producers such as Baosteel Group Corporation would show modest improvement and gain market share at the expense of their smaller domestic peers, as the government moves to reduce inefficient capacity.

On the other hand, Japanese steelmakers Nippon Steel & Sumitomo Metal Corporation and JFE Holdings are better positioned than other producers in the region to increase their profitability thanks in part to the growing domestic economy.

Korean steelmakers such as POSCO and Hyundai Steel's earnings would increase owing to capacity expansion.