Improved supply-demand balance to boost margins for APAC steel producers: Fitch report
Nov 01, 2023
New Delhi [India], November 1 : Asia-Pacific (APAC) steel producers are poised for positive developments as an improving supply-demand balance promises to widen industry margins, aided by declining costs for essential raw materials, According to a report by Fitch Ratings.
Chinese steel consumption has remained steady, with a flat year-on-year performance in 9M23. This stability is attributed to robust investments in the infrastructure and manufacturing sectors, compensating for a weaker property sector.
The production of crude steel has experienced a 1.7 per cent uptick, as manufacturers anticipate growing demand in the latter half of 2023.
As the year progresses, we anticipate production cuts in 4Q23 that will likely boost average selling prices and expand the industry margin.
An additional factor driving changes within the industry is the focus on carbon emission reduction. This endeavour necessitates substantial investments in research and development, and it is expected to lead to industry consolidation.
Simultaneously, the current low-margin environment is predicted to phase out smaller, high-cost producers. The consolidation process is likely to be spearheaded by state-owned entities, as smaller private producers may face challenges in terms of financial capability and support from financial institutions.
In India, major steel players are planning to increase domestic production capacity due to robust demand. This expansion is in response to the nation's economic growth and the rising per capita use of steel.
Notably, favourable cost positions are expected to enable increased exports, mitigating any potential domestic growth weaknesses.
It is vital to recognize that the steel industry contributes significantly to carbon emissions. In China, it accounts for more than 15 per cent of the nation's carbon emissions, while in India, it makes up 12 per cent.
Chinese industry leaders have announced plans to reduce emissions to align with the government's dual-carbon policy, aiming to peak emissions by 2030 and achieve carbon neutrality by 2060. Similarly, Indian counterparts have adopted decarbonization strategies encompassing a mix of initiatives.
The pursuit of carbon neutrality will necessitate substantial spending on new technologies and facility upgrades. However, these investments may place a strain on the financial performance of steel manufacturers, particularly if operational cash flow is insufficient.
The industry will navigate these challenges as it balances sustainability goals with financial sustainability.
