According to ratings agency Fitch Ratings, steelmakers from China and South Korea may post a faster recovery than Japanese peers this year, given their higher exposure to the booming Chinese economy.
The agency said in its North Asian Steel Outlook 2010 report that it expects all the rated North Asian steelmakers to recover this year.
According to the report, China's rapid economic recovery has led to strong improvement in steel shipments for Chinese steelmakers.
Mr Su Aik Lim director in Fitch's Asia-Pacific corporate team said "Strong automobile production growth in China has also benefited South Korean and Japanese steelmakers to varying degrees, with the latter seeing less benefits given the higher reliance of Japanese exporters on US demand."
He said that "Fitch expects Chinese steel demand to grow by 5% to 8% in 2010, slowing from 19% in the first nine months of last year. Unless export demand for Chinese steel products starts to pick up, industry crude steel capacity will remain in excess of demand in 2010, putting pressure on steel product prices."
Mr Jeong Min Pak senior director in Fitch's Asia-Pacific corporate team said "The South Korean steel sector is also likely to grow in 2010 driven by robust demand from the automobile and construction sectors, and the competitive pricing of local steel products versus imports."
This is on the back of the already rapid recovery the sector enjoyed in late half of 2009 with Pohang Iron and Steel Co Ltd the largest steelmaker reporting a plant utilization level of 100% in the fourth quarter of 2009.
Fitch believes that POSCO has room to raise its product prices to offset raw material price increases in 2010, though increased industry production capacity, such as Hyundai Steel's new blast furnace, may temper potential price hikes.
In contrast, Japanese steelmakers will undergo a slower recovery than their Chinese and South Korean peers. Fitch expects their profit to remain below the peak achieved in 2007 and 2008 as they are still operating below full capacity.
The rise in exports, particularly from strong automobile demand in China was a key driver for the recovery of Japanese steelmakers from the second half of last year. However, there are concerns that competing in export markets may deprive Japanese steelmakers of their key competitive advantage a strong relationship with Japanese manufacturers.
Therefore, a sustainable recovery for Japanese steelmakers will have to come from a similar recovery for their traditional customers, the Japanese automakers, which account for one third of their total demand.