Moody's Investors Service expects steel demand in India and Southeast Asia to increase this year and the next, but the gain may not be enough to offset the impact of China's slowing consumption of the metal.
Moody's has kept its outlook for the Asian steel industry negative, amid concerns that a continued decline in demand, driven by China, and increasing trade barriers around the world that limit exports, will reduce steel production. The sector's woes stem from the surge in China's steel output after the country beefed up manufacturing capacity to cater to its booming economic growth in the past decade.
"Persistent overcapacity will keep steel prices and companies' average profitability low," Moody's said in a report on Wednesday.
China produced more than 800 million tons of steel in 2015, nearly half the world's output, according to a report by World Steel Association. But with waning economic growth and tepid domestic demand, the nation's exports to global markets soared, creating a supply glut. Industrialized nations have flagged concerns about China's exports, accusing it of dumping steel at prices far below production costs to avoid cutting excess capacity.
"The receding demand from China's manufacturing and property sectors and global trade frictions will drag Asia's steel demand down by a low-single-digit percentage in the next 12 months," Moody's said.
Still, steel demand in India, which contributes 8% of Asian production, will outpace the regional average as the country's economic growth of around 7.5% in 2016 and 2017, based on Moody's forecast, remains among the highest in Asia, it said.
"India's reform and policy support for infrastructure and manufacturing, as well as increasing urbanization, will drive steel consumption."
The demand for steel in India, the third-largest producer in the world, is likely to soar as the country is boosting investments in infrastructure amid an economic rebound. India's steel consumption is likely to more than double to 210 million metric tons by 2025, Bloomberg News reported in July, quoting a joint secretary at the Ministry of Steel.
India had in February imposed tariffs to ensure a minimum import price for steel products, mainly to guard against cheap Chinese products. Earlier this month, an Indian government body recommended levying provisional anti-dumping duty on steel imports.
Mirroring the comments Standard & Poor's earlier this month, Moody's said it expects steps taken by the Indian government, and rising domestic demand to help the profitability of steel companies such as Tata Steel and JSW Steel.
Source:Nikkei