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Asian steel makers profitability to rise in 2015 - Moody's

Argus quoted Ratings agency Moody's Investors Service as saying that profitability of large Asian steelmakers may rise slightly next year, as capacity additions slow and blast furnace utilisation rates increase.

Mr Jiming Zou analyst of Moody's said that "We believe steelmakers' profitability has bottomed out and will increase slightly in 2015. Demand for steel will likely increase a modest 3pc, outpacing net production capacity additions. Declining raw material costs will also support steelmakers' profitability."

Iron ore prices have been forecast at USD 50 per tonne to USD 70 per tonne next year by various analysts, which would provide significant cost relief for steelmakers globally.

Moody's pointed out that while China is the major steel producer and consumer in Asia, Chinese steelmakers are the least profitable in Asia. Prominent Chinese steelmakers, such as Baosteel, will likely modestly grow profits and gain market share at the expense of smaller companies as the Chinese government gets aggressive on removing redundant production capacity.

The ministry said that China's ministry of industry and information technology earlier this month released a third list of 21 iron and steelmaking companies that will have to eliminate their outdated production capacity by the end of this year. Provincial governments should dismantle the outdated equipment mentioned in the list and ensure they are never brought back to use.

Moody's said that Japanese steelmakers Nippon Steel & Sumitomo Metal Corporation and JFE Holdings are better positioned than other producers in Asia to increase their profitability because of a growing domestic economy. South Korea's POSCO and Hyundai Steel's profits will increase with capacity expansion. POSCO will also higher earnings from its non steel businesses.

It said that capacity additions and high utilisation rates at existing plants is also likely to boost profitability for large Indian producers such as JSW Steel, Sail and Tata Steel.