International credit ratings agency Fitch Ratings has announced that it expects China's total steel production to fall in 2020 after reaching record highs in 2019.
Fitch expects a slowdown in residential property construction and an overall decrease in total steelmaking capacity in China, driven by more capacity exits from higher environmental and emission standards. Demand will be supported by higher infrastructure investment by the government, as well as a single-digit recovery in auto sales, despite the slowdown in housing construction.
Additionally, profitability in the Chinese steel industry is expected to recover due to normalizing raw material costs and stabilizing average selling prices. However, free cash flow generation is likely to diverge as China proceeds with the implementation of ultra-low emission standards, which will require significant environmental-related capital expenditure in order to avoid disruptions to production.
Fitch expects China's "annual apparent steel consumption" to fall and exports to potentially pick up if domestic demand is weaker than expected.
The rating agency said that the improved operating conditions should not result in any positive rating action, however, despite a likely rise in profitability and cash flow.