Moody's Changes Outlook for Asian Steel Producers to Negative
Moody's Investors Service says in a new report 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. Chris Park, an Associate Managing Director in Moody's Corporate Finance Group, said " 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. We expect steel producers' profitability, as measured by EBITDA per ton, will decline by around 15% in the 12 months to June 2020, following an 8% drop in the 12 months to June 2019."
Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer, and co-author of the report, said "Despite an uptick in demand from the infrastructure sector, soft demand from the property and manufacturing industries will limit growth in steel demand in China, while demand in Korea and Japan will remain largely flat. 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.”
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.
Finally, Moody's expects the increase in US tariffs on steel imports will have a limited direct impact on Asian steel companies because of their modest US sales. The worsening Japan-Korea relations will also not have a material impact on both, Korean and Japanese steelmakers.
Source : Strategic Research Institute