Moody's - APAC steelmakers’ profitability takes a dive on coronavirus-led demand destruction

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Research Announcement:

Moody's - APAC steelmakers’ profitability

takes a dive on coronavirus-led demand destruction

Singapore, July 29, 2020 --

» Profitability set to drop 15% in the year to March 2021, following a 30% drop the previous year » Sales volumes will contract for the first time since 2015

Moody’s Investors Service says in a new report that the coronavirus-induced demand shock and

an inability to pass on elevated costs to customers will severely hit the profitability of Asia Pacific

steelmakers over the year to March 2021. “Unlike previous downturns that were prompted by supply gluts linked to large capacity increases,

the coronavirus-led downturn has caused demand destruction across major steel-user industries,”

says Laura Acres, a Managing Director in Moody's Corporate Finance Group. “We expect aggregate EBITDA-per-ton profitability of the nine rated Asia Pacific steelmakers will

decline 15% in the 12 months to March 2021 after falling 30% a year earlier, underpinning our

continued negative outlook for the sector,” adds Kaustubh Chaubal, a Moody's Vice President and

Senior Credit Officer. Prices of iron ore, the main steelmaking material, will stay high over the next 12 months, as rising

coronavirus infections in leading iron-ore producer Brazil (Ba2 stable) signal potential supply

disruptions. Iron ore is now trading at 3.0x the level during the last downturn in January 2016. Meanwhile, plummeting automaker demand and weakness in the construction, infrastructure and

shipbuilding sectors will result in sales volumes contracting for the first time since 2015. Sales

volumes will fall by mid-single digits in Korea (Aa2 stable) and Australia (Aaa stable), high single-

digits in India (Baa3 negative) and by a midteen percentage in Japan (A1 stable). China’s (A1 stable)

demand, however, will fall only marginally given government support measures for infrastructure

construction. The impact of the downturn will vary by steelmaker, with China Baowu Steel Goup Corporation

Limited (A3 stable), POSCO (Baa1 stable) and BlueScope Steel Limited (Baa3 stable) benefiting

from strong financial profiles and sizeable cash buffers. The three are also industry leaders in their

home markets. These strengths, reflected in their stable outlooks amid a broader negative industry

outlook, signal their ability to cope with the challenges. Subscribers can access the report “Steel - Asia Pacific: Sharp profitability decline on

virus-wrought demand destruction keeps outlook negative” at:

http://www.moodys.com/

researchdocumentcontentpage.aspx?docid=PBC_1225464

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global

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This publication does not announce a credit rating action. For any credit ratings referenced in this

publication, please see the ratings tab on the issuer/entity page on

www.moodys.com

for the most

updated credit rating action information and rating history. Kaustubh Chaubal

VP-Sr Credit Officer

Corporate Finance Group

Moody's Investors Service Singapore Pte. Ltd.

JOURNALISTS: 852 3758 1350

Client Service: 852 3551 3077 Laura Acres

MD-Regional Corporate Finance

Corporate Finance Group

Moody's Investors Service Singapore Pte. Ltd.

JOURNALISTS: 852 3758 1350

Client Service: 852 3551 3077 Releasing Office:

Moody's Investors Service Singapore Pte. Ltd.

50 Raffles Place #23-06

Singapore Land Tower

Singapore, 048623

Singapore

JOURNALISTS: 852 3758 1350

Client Service: 852 3551 3077

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