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Moody’s maintains stable outlook for Asian steelmakers

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REUTERS

MOODY’s Investors Service said its outlook for the steel industry in Asia in 2019 is stable as China reduces capacity and enforces tough environmental rules.

In 2019, demand for steel in Asia will likely stay at levels similar to that in 2018, indicating a softening from the robust growth seen in 2018,” Kaustubh Chaubal, Moody’s Vice-President and Senior Credit Officer, said in a statement Thursday accompanying a Moody’s report, “Steel — Asia: 2019 Outlook.”

The stable forecast also reflects the direction taken by China’s Purchasing Managers’ Index, which has sustained a score above 50 in recent months. A score above 50 signals expansion.

“As for profitability, rated Asian steelmakers will see their profitability levels weaken mildly because of a decline in Chinese demand growth but stay strong overall,” he added.

Moody’s noted that business conditions and profitability vary by company and the particular economy that steelmakers operate in.

India, for instance, with the consolidation of its steel sector accompanied by solid demand, will allow robust profitability for Tata Steel Ltd. (Ba3 positive) and JSW Steel Ltd (Ba2 stable).

Meanwhile, the profitability of Japanese and South Korean steelmakers will diverge due to their exposures to various end-markets.

“For Japanese companies, profitability will hold steady or improve slightly, but for South Korean steelmakers like POSCO (Baa1 stable) and Hyundai Steel Co. (Baa2 stable), profitability will fall moderately in 2019,” it added.

Moody’s noted that the escalation of the Sino-US trade tensions will have a minimal effect on Asian steel demand because of the moderate indirect impact through supply chains and “manageable” direct impact on the macroeconomy.

“Our forecast of flat steel demand in China for 2019 reflects higher infrastructure spending that will limit the negative effects of the ongoing Sino-US trade dispute, and slower growth in China’s real-estate investments,” Kai Hu, a Moody’s Senior Vice-President, was quoted as saying.

However, it also cautioned that potential US tariffs on imported vehicles pose key downside risks to Japanese and South Korean steelmakers. — Janina C. Lim