Moody's: Asian steel industry remains solid

Moody's Investors Service said the fundamentals of the Asian steel industry remain solid, but that much depends on China in the coming 12 to 18 months and that a major theme will continue to be event risk as Asian companies position themselves for, or are impacted by, the global consolidation trend.

The agency said that within Asia's rating universe, Posco and Tata Steel Ltd. maintain the most favorable cost positions. In the case of Posco, the combination of its excellent financial profile and continued focus on reorienting production toward higher-grade output has strengthened its credit profile, culminating in the recent change in its A2 rating outlook to positive from stable.

Fundamentally, Tata Steel is well positioned in India's steel sector, aided by the competitive nature of its operations and India's substantial iron ore reserves, Moody's said. While the domestic industry is bracing for substantial additional capacity, strong economic growth and large national infrastructure projects over the medium-to-long term will provide support for the industry, the agency said, adding that excess capacity will be exacerbated in certain years.

Looking at individual product segments, the agency said China's excess supply of long products and lower-grade flats remains a major factor for the region, limiting any substantial growth in prices; higher-end products, however, should maintain a reasonably solid position into 2007 due to tight a demand/supply balance.

Moody's said it remains concerned about the operating position of small players such as G Steel plc, given the material impact price fluctuations have on their financial and liquidity profiles. Despite potential synergies and its improved domestic market position from its recent investment in NSM, G Steel's rating was recently lowered to B2 due to concerns over its weakened financial profile as a result of additional debt and increased risk appetite, the agency said.

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