Asian steel companies expect margins to decline - Moody's

Moody's recently released research paper on the Asian metals industry stated that revenues for Asian steelmakers are likely to decline due to declining production volumes and weak margins. The agency continues to maintain a negative outlook for the Asian steel industry. However, the Indian steel industry is expected to perform better than its Asian counterparts, given the latest protective and protectionist measures implemented by the Indian administration.

Industry consolidation could lead to the closure of unprofitable and inefficient steelmaking facilities in China. Moody's forecasts suggest a 3-4 percent decline in Chinese production over the next year. However, the decline in steel production is likely to have a limited impact on the global market, given the expected drop in demand. Incidentally, China accounts for 70% of Asian steel consumption. The report also envisages a decrease in the profitability of Chinese metallurgical companies compared to their Asian counterparts.

Despite trade measures, Chinese steel exports rose 9.3% year on year. It should be noted that exports to North America, the EU and Latin America fell sharply by almost 36% in the first half of the year due to the harsh tariff imposed on Chinese steel imports. On the other hand, exports to other countries in Asia and the Middle East have grown. Exports to Vietnam, Thailand, Saudi Arabia and Indonesia enjoyed strong growth in the absence of trade restrictions.

Export restrictions may affect Korean and Japanese steelmakers. Trade restrictions, declining demand from China, and falling domestic demand have led to a decline in firms' output in both countries. The stronger yen will continue to squeeze the profitability of Japanese steel exporters.

Indian steel companies are expected to do better on stronger domestic demand. The extra profitability of Indian steel producers compared to Asian counterparts is also related to the protections announced by the Indian administration, including minimum import prices (MIPs) and anti-dumping duties. Protective measures in India harm Chinese steelmakers, metallurgists in Japan and South Korea.