International credit ratings agency Moody's Investors Service has announced that its negative outlook for Asian steel companies reflects its expectation that profitability for the steelmakers will continue to decline, as oversupply and weakening demand in China will further weaken prices.
"Slow property investment, modest infrastructure spending and lackluster manufacturing will reduce Chinese steel demand by about five percent in 2016. At the same time, declining Chinese demand will lead to an increase in Chinese steelmakers' exports, pressuring already low prices and thereby the profitability of the region's major steelmakers," said Jiming Zou, Moody's senior analyst.
According to Moody’s, the profitability of Japanese and South Korean steelmakers will remain pressured by sluggish domestic demand and steel price declines in overseas markets. However, for Japanese steelmakers, the weak yen supports producers' cost structure, partly mitigating the negative pressures. In the case of South Korean steelmakers, a recovery in the domestic housing market will benefit long steel producers.
The rating agency also indicated that although Indian steelmakers will also see their profitability fall in 2016, their profitability will remain higher than that of other Asian steelmakers, owing to the country's rising demand and captive iron ore mines.