Moody’s predicts negative outlook for Asian steel sector in 2017

By Anil Mathews

December 01, 2016 02:46:00 AM

NEW DELHI (Scrap Monster): Moody’s Investors Service has predicted negative outlook for Asian steelmakers in 2017. The steel maker’s earnings are expected to report weaker earnings during the year, mainly on account of declining production and lower profitability. However, India is expected to stand out as the only area of strength in the region. The country’s steel demand is expected to rise in 2017. Further, the protectionist measures by the country’s administration will lend support to the domestic steel sector, amid global glut and surge in imports.

According to the recently released report titled “Steel-Asia 2017 Outlook-Weakening Production and Earnings Keep Outlook Negative” by Moody’s, the Asian steelmakers will not be able to sustain the robust profitability recorded during mid 2016. The EBITDA per tonne is expected to weaken further next year on account of spiraling oversupply. The region’s steelmakers will find it difficult to pass on rising raw material costs to customers as demand is expected to slow down during the course of the year.

Bucking the trend, Moody’s predict that India will turn out to be a bright spot amid all worries. Jiming Zou, Moody’s Vice President and Senior Analyst noted that the country will see domestic demand rising significantly during the year. The steel protectionist measures such as Minimum Import Price (MIP) and imposition of anti-dumping duties to curb cheap imports into the country will result in increased steel output by the country. It must be noted that the country’s government has imposed MIP on 66 steel products and anti-dumping duties on various grades of imported steel.

The increased steel output by India will be inadequate to offset the decline in Asian output, as the country accounts for only around 8% of the regional steel production. The Asian steel production volumes are likely to decline, mainly due to contraction in steel demand from China-which accounts for three-fourths of total regional production. The proposed tightening of regulatory measures by the Chinese administration may impact property sales volumes in the country. The drop in country’s GDP may stall manufacturing activities, which in turn may curtail steel demand. The trade restriction by other regions including the Europe and the US is likely to curb exports from the Asian region. Incidentally, Asian countries such as Japan, South Korea and Taiwan export nearly 40-50% of their steel output.

Meantime, the Indian Steel Ministry announced that it is currently reworking the existing National Steel Policy, aimed at helping the sector which is currently reeling under immense pressure from cheap imports. The new policy aims to achieve 300 million tonnes production capacity by 2025. The rise in production will eventually lead to drop in imports. The steel output by the country surged higher by 11.8% to total 8.23 million tonnes in October this year over October 2015.

Also, the imports data for the first six months of the fiscal year FY ’17 is quite encouraging, the Ministry noted. The data released by the Indian Steel Ministry’s Joint Plant Committee (JPC) had indicated that the country’s steel imports totaled 3.60 million tonnes during the six-month period from April to September 2016, which is down sharply by 37% when matched with the imports during the corresponding six-month period in 2015.