Moodys negative outlook for metallurgical production

The outlook for Moodys for the steel industry in the Asia-Pacific region remains negative. This outlook reflects Moodys’ expectations for key industry business conditions over the next 12 months. It says: “Falling demand will exacerbate declining profitability. The aggregate EBTTDA margin per tonne of the nine rated steel producers in the Asia-Pacific region will decline another 15% in the 12 months to March 2021 after falling 30% a year earlier. Deteriorating economic conditions, a demand shock caused by the coronavirus, and manufacturers’ inability to pass the increased costs onto customers will severely impact profitability. Absolute EBITDA will decline by about 20%, sharper than EBlTDA /tonne decline, as sales volumes decline. Manufacturing costs will remain high, keeping product distribution narrow. Prices for iron ore, the main steelmaking material, will remain high over the next 12 months. Prices for metallurgical coal, another key raw material, are falling amid weak demand for steel. However, product spreads will remain tight and margins low due to selling prices for mild steel and higher iron ore prices. ”

China’s economic growth is slowing after years of sustained growth. Real GDP will only grow by about 1% in 2020, and as a result, steel consumption in the country is likely to decline by a low one-digit percentage during March 2021 LTM. Growth in infrastructure construction, which accounts for the largest share of the country’s total steel consumption, has largely offset weak demand from manufacturing, including the automotive, property and shipbuilding sectors. We expect the pace of infrastructure investment to pick up in 2020-21, supported by central government spending to stimulate economic growth. Since the end of 2018, the Chinese government has developed policies that support faster growth in basic infrastructure investment, including rail and toll road construction. Meanwhile, demand from the real estate sector, another metal-intensive industry, will be weaker in 2020 than in 2019. Weaker demand takes into account sales disruptions earlier in the year, lower economic growth, weaker demand in some lower-tier cities, and our expectation that the government will not use the real estate sector to stimulate economic growth. Moodys expects national sales in 2020 to be moderately weaker than in 2019. Weak auto sales in China will reduce demand for steel products such as automotive sheets. Auto sales in China will decline 10% in 2020 amid signs that demand is starting to return to normal after a sharp decline in the first quarter. lower demand in some lower-tier cities and our expectation that the government will not use the real estate sector to stimulate economic growth. Moodys expects national sales in 2020 to be moderately weaker than in 2019. Weak auto sales in China will reduce demand for steel products such as automotive sheets. Auto sales in China will decline 10% in 2020 amid signs that demand is starting to return to normal after a sharp decline in the first quarter. lower demand in some lower-tier cities and our expectation that the government will not use the real estate sector to stimulate economic growth. Moodys expects national sales in 2020 to be moderately weaker than in 2019. Weak auto sales in China will reduce demand for steel products such as automotive sheets. Auto sales in China will decline 10% in 2020 amid signs that demand is starting to return to normal after a sharp decline in the first quarter.

India’s negative economic growth will remain substantially lower than in the past, and real GDP will contract by 3.0% in 2020. We assume that economic activity will start to gradually pick up from July. However, given the likelihood of a second or third wave of viral infections, or higher economic costs than currently considered, the risk of a deterioration in these projections is significant. According to Moodys estimates, lower GDP growth will lead to a decrease in steel consumption by at least 10% for the rated steel producers in the 12 months to March 2021. India will remain the world’s second largest steel producer after China, after overtaking Japan in 2018. the increase in production capacity will fade into the background due to low steel consumption, which will negatively affect the generation of free cash flow this year.
The Chinese government’s stance on capacity cuts remains firm. is he

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