IRON and STEEL
In its latest report ‘Asia Steel Outlook’ Moody’s Investor Service have forecasted that steel demand in China for 2019 will remain flat, thus reflecting the higher infrastructure spending that will limit the negative effects of the ongoing China-US trade dispute, and slower growth in China's real-estate investments.
The escalation of the Sino-US trade dispute will have a limited effect on Asian steel demand, given the moderate indirect impact through supply chains and manageable direct macro impact, Moody's said. However, the spillover effects could be greater, and potential US tariffs on imported vehicles pose key downside risks to Japanese and Korean steelmakers.
Moody's expects China's capacity cuts and stringent environment protection measures to mitigate weaker steel demand growth in the country. The stable outlook also reflects China's Purchasing Managers' Index which remains above 50 indicating expansionary manufacturing activity despite declining in recent months. Business conditions and profitability will vary by company and the particular economy that steelmakers operate in, it said.
In case of India, Moody’s has estimated that the consolidation in the steel sector and solid demand will support the robust profitability of steel players like Tata Steel and JSW Steel.
With Japanese and Korean steel makers, the profitability of companies will diverge because of their different exposures to various end-markets. For Japanese companies, profitability will hold steady or improve slightly, but for Korean steel makers like POSCO (and Hyundai Steel Company profitability will fall moderately in 2019.
In case of overall outlook for Asia in 2019, the demand for steel in Asia is likely to stay at levels similar to that in 2018, indicating a softening from the robust growth seen in 2018. As for profitability, the major Asian steel makers will see their profitability levels weaken mildly because of a decline in Chinese demand growth but stay strong overall.
The strong profitability is underpinned by robust demand in south and Southeast Asia, as well as China's capacity cuts and strict environment protection measures and that the Chinese steel industry drives the outlook for the sector in Asia as China is by far the region's largest steel customer and producer.