Indian Steel Industry to Perform Better Than China, Japan: Moody’s Investors Service

Thanks to a growing domestic demand and government’s protectionist measures to rein in imports from China, Japan and other countries with excess capacity, Indian steelmakers will likely to be in a better shape in 2017 compared with its Asia counterparts, Moody’s Investors Service said in a report.

“India is the only bright spot with rising demand and protectionist measures,” it said. 

A weakening of the Asian steelmakers’ earnings will stem from persisting oversupply and limited ability to pass on the rising raw material costs to the consumers.  EBITDA per tonne will weaken in 2017. Besides, increasing trade frictions will constrain their exports.
 
Terming the rebound in steel profitability in mid-2016 as a “temporary” phenomenon, Moody’s said it will encourage steel companies to continue producing, which, in turn, will put pressure on the prices and drag on their earnings amid slowing demand.
 
Demand will come down in China, region’s largest producer and consumer of steel, by about a low-to-mid single digit percentage in 2017, following a flat growth in 2016, owing to a decline in property sales and slowing exports. Though there will be continued investment on infrastructure, it would not be suffice to avert a decline in China’s steel demand.
 
“Pre-tax profit of Chinese large and medium steel companies will weaken in 2017,” it said, adding that Chinese steel exports, which have slowed down in the last 12 months, will flatten out in 2017.
 
Steel production and exports from Japan and Korea will continue due to increasing trade frictions. Their earnings will hit. While Japanese steel firms’ profitability will hit largely by currency movements, anti-dumping tariffs imposed by the US on Korean steel products will reduce their export profits. Japan, Korea and Taiwan generally export around 40-50% of their output.
 
 Major Asian steel-producing countries and their export exposure in 2015 :

(Source: World Steel association, Moody’s Investors Service)