Operating conditions in India remain most supportive in Asia: Moody's

Operating conditions in India will remain most supportive among Asian steelmakers, with robust domestic demand and protectionist measures, despite increase in raw material prices and new capacity, Moody's Investors Service has said in its latest report, Asian Steel Outlook-2018.

The report said earnings of Tata SteelBSE 0.77 % will increase significantly due to newly added capacity, while JSW Steel's earnings will remain steady.

The global ratings agency said its outlook for Moody's-rated steel companies in Asia through 2018 is stable, because profitability will be steady during this period, after improving significantly in 2017. "The likely stable profitability for Asian steelmakers that we rate is underpinned by the removal of excess steel-production capacity in China and broadly steady demand in Asia as a whole," says Kai Hu, a Moody's senior vice president.

Moody's says that steel capacity in China will continue to decline, due to the Chinese government's supply-side reforms and environmental protection measures. This will reduce the supply glut in Asia. China drives the outlook for steel companies in Asia since it is the region's largest steel consumer and producer.

A likely slowdown of contracted sales in China's property sector will have only a limited effect on overall demand and industry fundamentals over the next 12 months, because the strong contracted sales since 2016 will support new construction starts and steel demand over the next several quarters.

Elsewhere in Asia, domestic demand will prove steady in Japan and Korea, which, together with the steelmakers' efforts to cut costs and increase production of premium products, should keep earnings for companies in these two markets higher compared to 2015-16 levels.