Outlook for Asian steel industry is negative for 2017

According to the recently released report titled – Steel-Asia 2017 Outlook-Weakening Production and Earnings Keep Outlook Negative – by Moody’s, Asian steelmakers will not be able to sustain the robust profitability recorded during mid-2016.

Earnings before interest, tax, depreciation and amortization (EBITDA), per metric ton is expected to weaken further next year because of mounting stockpiles of steel causing a glut on the global market.

Further, protectionist measures in the US by President-elect Donald Trump and his incoming administration are expected to favour the US domestic steel industry to the detriment of imports from the Asian market.

The Asian region’s steelmakers will find it increasingly difficult to pass on rising raw material costs to customers as demand is expected to slow down during the course of the year.

The Asian steel production volumes are likely to decline, the report continued, mainly due to contraction in steel demand from China-which accounts for three-fourths of total regional production.

In addition, trade restrictions imposed by other regions including the EU and US are likely to further curb exports from the Asian region.

Meanwhile, a report of the Vietnam Steel Association showed that its member steelmakers produced 1.48 million metric tons this past October, up 18.6% on-year, with sales jumping 23% to 1.2 million metric tons.

However, Vice President Nguyen Van Sua of the Association warned of challenges ahead as cheap steel imports from China would continue to adversely affect the country’s domestic market.

The total volume of finished steel products imported from China since the beginning of 2016 has exceeded 7.29 million metric tons valued at US$2.86 billion, accounting for nearly 60% of the country’s total steel imports in terms of volume.

Mr Sua also cautioned that the US Department of Commerce investigation into whether Chinese steel companies are shipping steel through Vietnam to avoid US import tariffs may damage steel exports even further over the coming year.

The investigation comes on the heels of a complaint filed last September by US steelmakers, and is an escalation of US efforts to stop a glut of China-made metal from flooding US markets.

The results of the inquiry could result in new tariffs on steel imported from China via Vietnam, under rules designed to prevent such a tariff-evading practice, known as circumvention.

US steelmakers alleged in their complaint that Chinese steelmakers have shipped metal to Vietnam, made relatively minor changes to it so that they could then classify it as Vietnamese and subsequently shipped it to the US under the lower tariffs charged on Vietnamese steel.

At the heart of the issue is whether the changes such as adding zinc to make it corrosion-resistant fundamentally alters the steel enough to make it essentially a brand-new product that technically qualifies as ‘Made in Vietnam.’