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India's reform and policy support for infra, mfg to drive steel consumption: Moody's

International rating agency Moody's Investor Service in its latest report titled 'Steel-Asia: Lower Earnings Keep Outlook Negative' has said that India's reform and policy support for infrastructure and manufacturing, as well as increasing urbanisation, will drive steel consumption. The report said that steel demand in India will outpace the regional average as the country's Gross domestic product (GDP) growth of around 7.5 per cent in 2016 and 2017 based on their forecast, remains among the highest in Asia, while profitability of domestic steel companies will outperform regional peers on account of increase in domestic demand.

Moody's further said the profitability of Indian steel companies such as Tata Steel and JSW Steel will outperform that of regional peers owing to rising domestic demand and Indian government's protectionist measures in the form of minimum import prices and anti-dumping duties. In addition, the expected ramp-up of Tata Steel's greenfield Kalinganagar operations and JSW's brownfield expansion will help raise the companies' earnings in 2016.

Rating agency said that it anticipate the profitability of the rated steel producers to remain higher than the regional industry average because most of them are leaders in their respective countries, sell high-margin premium steel products and benefit from business integration and diversification. Asian steel demand will continue to decline by a low-single-digit percentage in the next 12 months owing mainly to slowing demand from China's manufacturing and property sectors. Also the volume of steel exported from China will grow by a low-single-digit percentage in the next 12 months and flatten out towards the end of 2017, down from 20 per cent year-on-year growth in 2015.

Report stated that Indian and Southeast Asian demand will rise but would not offset the decline in China, which accounts for about 70 per cent of Asian steel consumption. According to China's General Administration of Customs, countries are taking steps to limit the import of cheap steel, primarily from China, in an effort to protect their own steelmakers, as a result the growth in Chinese steel exports slowed to 9% per cent during the first half of 2016.

India, which accounts for 8 per cent of Asian production, will increase steel production to meet rising domestic consumption but this increase would not be enough to prevent the aggregate regional production decline. Production in other major countries excluding India will also decrease.  Japan, Korea and Taiwan, which export around 40-50 per cent of their steel output, have reduced their production due to flat domestic demand, the lower demand from China, overseas price competition and trade barriers.

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