Profitability of Indian steel companies is likely to improve next year despite an increase in raw material prices, according to Moody’s Investors Service.
In its latest report ‘Steel — Asia, 2018 outlook’, the rating agency said that among major steel-producing Asian countries, operating conditions will be most supportive in India because of robust domestic demand and protectionist measures, and despite an increase in raw material prices and new capacity.
Moody's has also revised the outlook of Asian steel companies to stable as it expects the profitability of these companies to be steady compared to 2017. “The likely stable profitability for Asian steelmakers that we rate is underpinned by the removal of excess steel-production capacity in China and broadly steady demand in Asia as a whole,” says Kai Hu, a Moody's Senior Vice-President.
Steel production capacity in China will continue to decline, due to its government’s supply-side reforms and environmental protection measures.
These factors will reduce the supply glut in Asia, Moody’s said in a statement on Wednesday.
China drives the outlook for steel companies in Asia because the country represents the region's largest steel consumer as well as producer. “Overall steel demand in Asia will remain stable, with robust demand growth in South and South-East Asia, and flat growth in China,” said Hu.
A likely slowdown in China's property sector sales will have a limited effect on overall demand and industry fundamentals over the next 12 months, because the strong fall in sales since 2016 will support new construction and steel demand over the next several quarters.
Domestic demand will be steady in Japan and Korea, which, together with the steelmakers’ efforts to cut costs and increase production of premium products, should push up earnings of companies in these two countries, it added.