Declining Asian production, spurred by continued slowing demand from China and increasing trade frictions worldwide, and weak profitability will reduce the earnings of Asian steelmakers, according to international credit rating agency Moody’s.
"Our expectation that Asian steelmakers' aggregate earnings will be lower in the coming 12 months keeps the industry outlook negative. A continued decline in demand, driven by China, and increasing trade barriers around the world, which limit exports, will reduce steel production, and persistent overcapacity will keep prices and companies' profitability low," said Jiming Zou, Moody’s vice president and senior analyst.
Moody’s stated that demand from India and Southeast Asia will increase, but will be insufficient to offset the decline in China, which accounts for about 70 percent of Asian steel consumption. Moody's expects earnings for steel producers in China to decline during the outlook period, after rebounding in the second quarter of 2016 because of temporary price spikes. South Korean and Japanese steelmakers will also be hurt by export restrictions, and Japanese companies will continue to suffer because of the strong yen.
The rating agency pointed out that it would consider changing the industry outlook to stable if it expected China's Purchasing Managers' Index to stay above 50 and the EBITDA per metric ton of major Asian steelmakers to show signs of improvement in the next 12 months. However, a change to a positive outlook is unlikely during the coming 12 months in view of the current environment. The outlook has been negative since July 2015.