Moody's outlook on Asian steel industry turns negative

MUMBAI: Global rating agency Moody's has changed its outlook for the Asian steel industry to negative from stable, citing steelmakers' declining profitability amid a growing supply glut.

"We expect Chinese steelmakers' earnings will decline considerably in the coming 12 months as the country's steel glut worsens amid declining demand and steady capacity," says Jiming Zou, Moody's Vice President --Senior Analyst . China -which accounts for 70% of the region's steel demand-experiences weakening trends in real estate, infrastructure and manufacturing, Moody's expects steel demand to dwindle, even as production continues, pressuring steelmakers

"Steel demand from Southeast Asia and India will likely increase but will be insufficient to offset the decline in China," Moody's report stated.

In the first four months of 2015, Chinese steel demand, as measured by total output less net exports, fell 4%, versus a 2.5% drop in full-year 2014, the report said. However, steel production and capacity will remain stable as Chinese steel companies boost exports.

This spells trouble for Indian steelmakers such as Tata Steel and JSW Steel, who have been cutting selling prices drastically to beat cheap Chinese imports coming into India.