Moody's Investors Service says that profitability of Asian steelmakers will increase slightly in 2015 as capacity growth slows and utilization rates rise, underpinning its stable outlook for the industry.
''We believe steelmakers' profitability has bottomed out and will increase slightly in 2015,'' says Jiming Zou, a Moody's assistant vice president and analyst.
''Demand for steel will likely increase a modest 3%, outpacing net production capacity additions and driving increased utilization rates. Declining raw material costs will also support the steelmakers' profitability,'' added Zou.
Zou was speaking on the release of Moody's 2015 Outlook for the Asian Steel Industry. The outlook reflects Moody's expectation for fundamental business conditions in the industry in 2015.
According to the Moody's report, steel demand and capacity growth in China drive the Asian steel outlook, as the country is by far the region's largest consumer and producer of steel. But the country's steel producers remain the least profitable in Asia because of domestic oversupply.
Moody's expects leading Chinese producers such as Baosteel Group Corporation (A3 stable) will show modest improvement and gain market share at the expense of their smaller domestic peers, as the government moves to reduce inefficient capacity.
In Japan, rated Japanese steelmakers Nippon Steel & Sumitomo Metal Corporation (A3 stable) and JFE Holdings ((P)Baa1 stable) are better positioned than other producers in the region to increase their profitability, thanks in part to the growing domestic economy.
In Korea, POSCO's (Baa2 stable) and Hyundai Steel Co.'s (Baa3 negative) earnings will increase owing to capacity expansion and, for POSCO, higher earnings from non-steel businesses.
Capacity additions and high utilization rates at existing plants will boost profitability for large Indian producers such as JSW Steel (Ba1 stable), SAIL (unrated) and Tata Steel (Ba2 review for upgrade).
Moody's would consider changing the industry outlook back to negative if it comes to expect the EBITDA per tonne of major steelmakers will decline by 15% in 2015, and China's purchasing managers index falls below 50 from 50.8 in October.
The outlook could change to positive if major steelmakers' EBITDA per tonne looks likely to increase by 15% or more.