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KOLKATA: Two of India’s largest steel producers Tata Steel and JSW Steel are expected to improve earnings per tonne due to strong domestic consumption, few new capacity additions and higher capacity utilisation driven by consolidation in the sector.
This is part of Moody’s Investors Service latest outlook for the Asian steel industry which is tipped to remain stable on the back of steady demand with producers’ profitability expected to improve over the next 12 months.
Moody’s conclusions are contained in its just-released report, “Steel-Asia: Earnings Growth on Steady Asian Demand Drives Stable Outlook”.
“Profitability, as measured by average earnings before interest tax depreciation and amortisation (EBITDA) per tonne for our rated steel companies, will grow slightly over the next 12 months — following a strong improvement in 2017 — underpinned by steady regional demand,” Chris Park, a Moody’s Associate managing director said.
Two rated Indian steel producers’ EBITDA per tonne will rise by a midsingle-digit percentage on solid steel consumption, the report said.
“With minimal new steel capacity expected to be commissioned until 2021 in India, robust steel demand — especially from the construction, infrastructure and automotive sectors — will keep end-product prices high, even as rising costs for key inputs, coking coal and iron ore, pressure profitability,” it added.
Tata Steel’s recent acquisition of 5.6 million tonne producer Bhushan Steel will increase in the company’s steel shipments by over a third.
Moody’s expects Tata Steel’s India operations to see a rise in EBITDA per tonne by mid-single-digit over the next 12 months while the company’s backward integration in iron ore and coking coal augurs well in times of rising input prices.
JSW’s EBITDA per tonne will also increase by a mid-single digit, with the effect of rising input prices compensated by an increasing proportion of specialty and high-value-added products, and cost reductions.
Moody’s also said Indian steel producers have marginal exposure to the US, reducing their indirect exposure since most of their sales are to domestic automotive and manufacturing companies.
