Moody's: Asian steel and coal sectors outlooks are negative
Wednesday, December 11 2013 - 08:37 AM WIB
The negative steel industry outlook reflects the expectation that steelmakers' profits will remain historically low in 2014 as output remains high and demand growth slows.
The negative coal industry outlook reflects the weak liquidity and elevated default risk for Ca- and Caa-rated companies, as increasing coal production dampens prospects for a meaningful rebound in coal prices.
Moody's conclusions were contained in a just-released report titled, "2014 Outlook -- Asian Steel and Coal, Oversupply and Weak Prices Drive Negative Outlooks". The report was authored by Jiming Zou, a Moody's Assistant Vice President - Analyst, and Brian Grieser, a Moody's Vice President - Senior Analyst.
According to the report, demand for steel will increase a modest 2%-3% in 2014 as China's government tolerates slower GDP growth and shifts economic growth drivers to domestic consumption from infrastructure spending.
The Chinese government's push to cut inefficient steel capacity will be credit positive for most large steel producers in the region. However, uncertainties remain as to the timing and the scale of the capacity cuts.
We expect thermal coal prices will remain flat at $80-$85 per tonne and that coking coal will remain around $150 per tonne next year.
But uncertain regulatory environments in China and India, the largest importers of coal, and in Indonesia, the largest exporter of seaborne coal, cloud the coal industry's supply-demand dynamics.
Moody's could revise the steel outlook to stable if China's Purchasing Managers' Index stays above 50, and we come to expect EBITDA per tonne for the region's largest steelmakers will start improving.
The coal outlook could also turn stable if we come to expect EBITDA per tonne for the region's largest coal producers will begin improving and if producers' liquidity strengthens, either through increased cash flow or refinancing. (ends)