International credit rating agency Moody's has announced that Asian steel companies face increasing operating challenges in 2015, as Chinese steel demand slows, adding that it could change its outlook on the Asian steel sector to negative from stable if this weakness persists.
Moody's report warned that steel demand growth in China will be negatively affected by the slowing domestic economy and weakness in the property market, which is one of the primary end-markets for steel. According to Moody's, the sluggish steel demand will impact steelmakers in Asia because China accounts for approximately 70 percent of the region's steel demand.
Moody's could change its outlook on the Asian steel industry to negative if steel demand continues to decline over the next few months. Still, sluggish domestic demand will not greatly affect supply levels, as Chinese steel companies will keep 2015 production close to 2014 levels by boosting higher-price exports, although this will pressure regional steel prices, Moody's noted.
Regionally, Moody's expects unchanged steel demand in South Korea and Japan, while India will post single-digit demand growth as the new government invigorates infrastructure spending. Indian steel companies will enjoy the highest profitability among the others because of import duty and/or captive iron ore supplies.