India will be the brightest spot for the steel sector over the next 12-18 months, according to Moody's Investors Service. A Moody’s statement said India’s steel consumption is rising at least 5.5 per cent to 6 per cent every year, tracking strong GDP growth of 7.3 per cent to 7.5 per cent.

“Rated Indian steel producers have marginal exposure to the US. We estimate that their indirect exposure may also be limited, given most of their sales are to domestic automotive and manufacturing companies,” the statement 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. Meanwhile, India's steel sector consolidation will drive improvement in the industry’s capacity utilisation levels and mute the pressure on profitability,” the statement added.

Tata Steel's acquisition of Bhushan Steel Ltd will underpin the increase in Tata’s steel shipments by over a third. “We expect a mid-single-digit increase in EBITDA per tonne for Tata Steel's Indian operations over the next 12 months. Moreover, Tata Steel’s backward integration in iron ore and coking coal augurs well in times of rising input prices,” the Moody’s statement said.

“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 speciality and high value-added products, and cost reductions,” Moody’s said.

Moody’s also noted that the outlook for the Asian steel industry is stable, reflecting the consideration that the profitability of rated producers will increase moderately over the next 12 months against the backdrop of overall steady regional demand.

“Profitability, as measured by average 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.

“China's capacity cuts and stringent environmental protection measures will also support profitability,” Kai Hu, a Moody's Senior Vice-President, said.

The profitability of rated Japanese and Korean companies will diverge because of their differing exposures to various end-markets, and China Baowu Steel Group Corporation Ltd's EBITDA per tonne will fall slightly because of an expected decline in demand and prices.

Asian steel demand will remain steady over the next 12 months to June 2019, because solid growth in 2018 will offset a likely softening in 2019. The expected softening in demand in 2019 is because China's apparent demand will likely decrease by a low-single-digit percentage, reflecting likely slowdowns in the growth of the property sector and in infrastructure investments, the statement added.

The expected decline in China's steel demand also factors in the ongoing US-China trade dispute, given the indirect impact through supply chains.

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