Moody's projected that profitability of Indian steel companies such as Tata Steel and JSW Steel will remain the highest in the region owing to captive iron ore supplies (for Tata) and rising domestic demand.
Rating agency Moody’s on Monday projected an increase in demand for steel in India on the back of strong economic growth and revival of infrastructure spending.
The global firm also forecast that a steel glut in world’s largest producer China is expected to worsen amid slowing demand and steady production.
Regarding India, Moody’s said: “the country’s relatively strong economic growth and the government’s plan to revive infrastructure spending and increased steel consumption in the manufacturing sector will boost the country’s steel demand.”
Moody’s Macroeconomic Board forecasts GDP growth of 7.5 per cent in 2015-16, up from 7.2 per cent in 2014 and 6.4 per cent in 2013, it added.
“We expect India to post mid-single-digit steel demand growth, up from 2.2 per cent in 2014. To capture this growth, India’s three largest steel manufacturers by production volumes — SAIL, Tata Steel and JSW Steel — will add production capacity in the next one to two years,” it said.
Moody’s projected that profitability of Indian steel companies such as Tata Steel and JSW Steel will remain the highest in the region owing to captive iron ore supplies (for Tata) and rising domestic demand.
“The profitability of Indian steel companies such as Tata Steel and JSW Steel, despite steel prices being pressured by imports, will remain the highest in the region as a result of captive iron ore supplies (in the case of Tata) and more favourable domestic industry conditions,” Moody’s said.
As regards Asian steel industry, Moody’s Investors Service changed its outlook to negative from stable, reflecting steelmakers’ declining profitability amid a growing supply glut.
Chinese steelmakers’ earnings will decline considerably in the coming 12 months as the country’s steel glut worsens amid declining demand and steady capacity, it added.
Chinese steel demand will likely decline amid weakening trends in real estate, infrastructure and manufacturing, Moody’s said.
China accounts for 70 per cent of Asia’s steel demand.
The glut will put pressure on steelmakers in China as well as Asia and exports from Chinese steel mills will increase.
“Steel demand from Southeast Asia and India will likely increase but will be insufficient to offset the decline in China,” it added.
In India, the latest data by the Joint Plant Committee, under the Steel Ministry, showed that steel consumption grew 7.1 per cent to 20.10 million tonnes (MT) in the first quarter of 2015-16 helped by cheaper imports and increased production of saleable steel.
Tata Steel’s India operations were negatively impacted in Q4 2014 and Q1 2015 when the firm imported iron ore due to a government ban on mining in May 2014 following the non-renewal of expired leases.