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Indian steel firms set to perform better on increased demand: Moody's

Business Standard:  August 17, 2016

Amid a gloomy picture for the world's steel industry, Indian steel companies are expected to do better from now on as demand for steel will buck the global trend and is set to increase.

Mumbai: In a rating outlook for global steel companies, Moody’s Investors Service said that “Demand from India and Southeast Asia will increase”. However, this hike will be insufficient to offset the decline in China, which accounts for 70% of the Asian steel consumption. Chinese production will likely contract 3-4% in the next 12 months. 

The reasons for Indian industry doing well will be protection measures announced by the Indian government apart from other reasons. Jiming Zou, Vice President and Senior Analyst with Moody's said that "the profitability of Indian steel companies will outperform that of their regional peers owing to rising domestic demand, minimum import prices and anti-dumping duties."

The very protection measures by India will act as a spoil spot for major producers in China and other steel majors. Moody's said in a newly released report on the Asian steel industry, "Steel - Asia: Lower Earnings Keep Outlook Negative".

It said that the Korean and Japanese steelmakers will also be hurt by export restrictions while Japanese companies will continue to suffer from strengthening Yen.

Some loss-making small or inefficient steel companies in China have suspended production, and supply-side reform is driving industry consolidation. However, these supply reductions will have a limited impact in the next 12-18 months, given the declining demand and substantial overcapacity in China.

Moody's would consider changing the industry outlook to stable, "if we  expect China's Purchasing Managers' Index to stay above 50, indicating expansionary manufacturing activity, and the EBITDA per tonne of major Asian steelmakers to show signs of improvement in the next 12 months. Both factors would stabilize steelmakers' earnings.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.