Damstahl Stainless Steel Briefing March 2016

Damstahl Stainless Steel Briefing March 2016 Damstahl 2016. Damstahl

Contents Stainless Steel at a Glance 3 European Industry News 7 Business Climate (PMI) 10 China Monthly Exports 11 Relevant Issues in Damstahl Land 12 Germany Netherlands Denmark Sweden Norway Slovenia Finland 2 Damstahl 2016. Damstahl

Stainless Steel at a Glance Market First Signs of Spring? The bad news first the German stainless steel market, which is the biggest in Europe, is lacking any momentum at the moment, and the most recent PMI indicates no change to this in the months ahead. The reason being that Germany is the most exposed to lacklustre export markets, including China. Additionally Germany has the highest exposure to capital goods investments which are the weak-spot in the stainless steel market at the moment. But signals from other European markets (including the big Italian market) and early indicators from nickel and stainless steel scrap justify some spring feelings. It seems that the market has in February/March. Mills report an increasing order intake and delivery times are (slightly) longer now than one month ago. Consumer goods, including cars and the building sector are the leading stainless steel market drivers at the moment. Alloy surcharge: Stainless surcharges for March fell again on the further nickel price slide in February. The range of monthly alloy surcharges in March 2016 for type 304 (1.4301) published by Outokumpu, Acerinox and Aperam fell to 734-827 EUR/t down by around 5-6% from around 779-872 EUR/t in February 2016. March surcharges for type 316 (1.4401) were set at around 1,039-1,134 EUR/t, corresponding to an equal decline of 5-6% compared with 1,103-1,189EUR/t in February 2016. 3

Stainless Steel at a Glance Building & Construction: According to the statistical office of the European Union Eurostat, the seasonally adjusted production in the construction sector in December 2015 grew by 1.4% yoy in the EU28. The increase in production was mainly due to building construction falling by 0.5% while civil engineering rose by 2.6% The average production in construction for the full year 2015 increased by around 0.8% yoy in the EU28. Strongest growth, respectively decrease in December 2015: Growth: Decrease: Slovakia +24.9% Slovenia -9.3% Sweden +15.2% Portugal -4.7% Romania +13.9% France -3.6% The Netherlands -3.1% Consumer Goods: German Electrical and Electronic Manufacturers' Association ZVEI reports a moderate start into 2016 for the German electronics industry. Order intake in January 2016 fell by around 0.3% yoy mainly due to domestic orders rising by 2.2% and international orders falling by 2.4% yoy. Both production and turnover marginally increased at 0.3% yoy and 0.1% yoy, respectively. For 2016 ZVEI expects a slight growth in production of around 1% as well as an increase in revenues of around 2% to 182 bn. EUR. 4

Stainless Steel at a Glance Automotive: The passenger car market started off positively, when recording growth for the 29th consecutive month in January 2016. New passenger car registrations in the European Union amounted to 1,061,150 vehicles, rising by around 6.2% compared to the same month in 2015. Italy (+17.4% yoy) and Spain (+12.1% yoy) led the field with double-digit growth rates in January 2016. Also other main markets like France (+3.9% yoy), Germany (+3.3% yoy) and the United Kingdom (+2.9% yoy) showed decent growth albeit at more modest rates than a year earlier. In January 2016, the Volkswagen Group accounted for the largest share of passenger car registrations (24.2%), followed by the PSA Group (10.6%) and the Renault Group. Process Industry: According to the German engineering association VDMA the German mechanical engineering incoming orders fell short in January 2016, showing a decline of 12% yoy. Both domestic (-8% yoy) and international orders (-14% yoy) strongly fell, especially from euro countries which declined by almost one third. In a three-month assessment from November 2015 to January 2016 real growth is reported at around 1% as gains of the last two months in 2015 were almost completely negated by a very weak January 2016. 5

European Industry News / PMI Status European Industry News Where do we stand in the Business Cycle? PMI Status China Monthly Exports 6

European Industry News Melting production down by 2% - Hard times for mills The European stainless crude steel production amounted to approximately 6.7 mill. t in the first eleven months of 2015, which is around 2% less than in the same period of 2014. For the whole year 2015 the production level will most likely be just below the 2014 level. Outokumpu s full year 2015 sales totalled 6,384 mill. EUR set against annual sales of 6,844 mill. EUR in 2014 (-7% yoy). EBITDA improved from 104 mill. EUR in 2014 to 531 mill. EUR in 2015. EBIT was turned from a 243 mill. EUR minus in 2014 to a 228 mill. EUR plus in 2015. After several years of losses the 2015 net result was positive again at an EAT of 86 mill. EUR (2014: -439 mill. EUR) but only through one-off effects from the sale of Fischer Tube in Mexico and SKS in China. Without these special gains OTK would have reported another significant loss in 2015. Acerinox closed the year 2015 with a turnover with sales of 4,221 mill. EUR, corresponding to a decline of around 3.6% compared with a turnover of 4,379 mill. EUR in 2014. The group s 2015 EBITDA fell by around 37% from 454 mill. EUR in 2014 to 286 mill. EUR in 2015. Acerinox EAT declined by more than two third in 2015 to only 43 mill. EUR down from around 136 mill. EUR in 2014 (-69% yoy). According to Acerinox, results were negatively affected by continuously falling raw materials prices, rising Asian imports and high stock levels at distributors, with a strong deterioration in HY2/15. 7

European Industry News Invoiced sales for the full year 2015 of Sandvik s stainless branch Sandvik Materials Technology (SMT) were 12,625 mill. SEK, down by 15% on the 2014 figure of 14,713 mill. SEK. SMT s EBITDA radically fell from 1,880 mill. SEK in 2014 to only 8 mill. SEK in 2015 and also the branch's 2015 ROI fell to 0.1% down from 13.7% in 2014. SMT s figures were mainly influenced by the oil price deterioration and declining demand from the NAFTA region (-34% yoy) and Asia (-15% yoy). According to SMT the competition for standardised tube products increased as some companies replaced lost volumes from the oil and gas segment with adjacent segments. Tubacex reports a decline in sales of around 2.4% for the full year 2015, reaching 533.4 mill. EUR (2014: 546.5 mill. EUR). EBITDA was 48.9 mill. EUR, corresponding to a decline of around 23.7% compared with an EBITDA of 64.0 mill. EUR in 2014. Tubacex EAT totalled 8.4 mill. EUR, falling by around 65% set against an EAT of 23.8 mill. EUR in 2014. According to the Spanish tube producer declining demand in the oil and gas sector alongside weak raw material and oil prices strongly impacted the daily business. As 2016 also started off weak, Tubacex announced plans for a more diverse product portfolio to balance weak demand in specific market segments. 8

European Industry News Acciaierie Valbruna announced to modernise its 200,000 tpy continuous billet caster in Bolzano, Italy to be able to produce stainless steel and alloy bars with cross-sections up to 180 mm. The modernization of the three-strand billet caster is scheduled for summer 2016 and will be performed by Primetals Technologies, who supplied the original equipment in 1992. Jacquet Metals fra Frankrig reports sales of 1,378 mill. EUR in 2015, up by 22% on the company s 2014 sales of 1,126 mill. EUR. The 2015 EBITDA fell by 35% to 38 mill. EUR, down from 58 mill. EUR in 2014. Jacquet s EAT doubled from 25 mill. EUR in 2014 to 50 mill. EUR in 2015 (+100% yoy). Acciai Speciali Terni (AST) announced a change in management in as Ms. Lucia Morselli, the current CEO will not extent her contract which ends on March 31st, 2016. From April 1st, 2016 Mr. Massimiliano Burelli, currently managing director of aluminium producer Constellium Singen GmbH and Constellium Deutschland GmbH will take over the role as CEO of AST. Aperam has awarded US mill services provider Harsco a five-year contract extension over core services for Aperam s electric arc furnace at its Belgian Châtelet facility. Projected revenue for these services such as scrapyard management and slag transport is expected to be in excess of 100 mill. USD. 9

Where do we stand in the business cycle? 65 60 PMI Status February 2016 USA (49.5) and China (49.0) remain in contraction territory but also the EU lost some momentum (51.2) EU USA China 55 50 45 40 35 30 Index of 50 = Break Even Point 10

China Monthly Exports January 2016 Continuous decline for Flat Products since November 2015 while Long Products showed the opposing development 350000 Flat Products Long Products 300000 250000 200000 150000 100000 50000 0 11

Relevant Issues in Damstahl Land Germany The Netherlands Denmark Sweden Norway Slovenia Finland 12

Relevant Issues in Damstahl Land Germany: End user demand in the German stainless steel market was lacklustre so far this year and margins remain unsatisfactory at current price levels. The market is likely to pick up only after the Easter holidays, which means that the weak period is expected to last until the end of march. Delivery times remain short as stocks are still on sufficient levels. Expectations of a rising stainless surcharge for April gives some hope to market participants that prices have at least bottomed out. But contrary to the USA, where two base price increases were accepted by the market this year, the European market is not strong enough (yet) to justify any price hikes. An impulse for price increases could only come from a further weakening of the which could happen after the last measurements (zero interest) of the ECB. BASF is reported to be evaluating a rival takeover bid for DuPont, a US-based 55 bn. USD chemical company that agreed to a merger with Dow Chemical Co. in December 2015. DuPont and Dow Chemical Co. agreed to combine in an all-stock merger valued at 130 bn. USD, merging two of the biggest US chemical producers. BASF also showed interest in making a bid for Syngenta, a Swiss agrochemical company which in 2016 agreed a 43 bn. USD takeover bid from the Chinese chemicals group ChemChina. Both takeovers were not closed yet and would result in break fees in the range of a few billion USD. GEA Group s order intake for the full year 2015 was 4,590 mill. EUR up by 1.6% on the 2014 order intake of 4,520 mill. EUR. Sales rose from 4,516 mill. EUR in 2014 to 4,599 mill. EUR in 2015 (+1.9% yoy). EBITDA rose by 5.1% to 621 mill. EUR in 2015, set against an EBITDA of 591 mill. EUR in 2014. EBIT declined by around 29.6% totalling 309 mill. EUR in 2015 (2014: 440 mill. EUR). 13

Relevant Issues in Damstahl Land The Netherlands: The Dutch stainless steel market shows first signs of the end of a further fall in prices as nickel prices are improving again. Prices for stainless products in March are expected to be the lowest in HY1/16. Stock levels are declined as mill delivery times increase, but to date big volume orders are yet to come. While the building industry and the oil and gas industry remain in a bad shape, investments in the food industry are increasing. In spite of a slight improvement in the Dutch exports the fundamentals for steady and sustainable growth are still missing. AkzoNobel revenues in 2015 totalled 14,859 mill. EUR, showing growth of around 4% compared to the 2014 revenues of 14,296 mill. EUR. EBITDA strongly improved by 24% totaling 10,475 mill. EUR in 2015 (2014: 9,871 mill. EUR). EAT rose from 546 mill. EUR in 2014 to 979 mill. EUR in 2015 (+79% yoy). The company states to have reached its financial targets and now plans to focus on organic growth. Corbion s net sales in 2015 totalled 918 mill. EUR up from 770 mill. EUR in 2014 (+19% yoy). EBITDA grew to 156 mill. EUR, corresponding to an increase of 64% set against its 2014 EBITDA of 95 mill. EUR. The company also reported to have finished the engineering phase for its 75 kt poly-lactic acid plant in Thailand, which is expected to be operational by HY2/18. Aalberts Industries reached an agreement to acquire 100% of the shares of Texas-based Schroeder Industries, Inc. a company active in the beverage dispense systems and a user of stainless steel bars and sheet. 14

Relevant Issues in Damstahl Land Denmark: In Denmark, stainless price drops have partially stopped and even some price increases are reported, despite a still weak nickel. Activity in the pharmaceutical industry is very lively while the food industry, in particular the dairy industry, is still experiencing severe problems. According to the Danish statistical office the Danish economy in general returned back to growth in Q4/15 after declining sharply in Q3/15. Vestas announced to have completed the transaction to buy the Germany-based service company Availon with its 400 employees. Availon s main market is Germany but also has notable service activities in Austria, Italy, Portugal, Spain, Poland and the United States. The acquisition price for Availon is 88 mill. EUR on a debt and cash free basis. Avalon generated revenues of 59.8 mill. EUR at an EBITDA of 5.2 mill. EUR in 2015. Arla Foods announced to close its milk processing production facilities at its Hatfield Peveral dairy in Essex. The closure planned for the end of July will result in the loss or relocation of up to 200 jobs. Main reason for the plans are the high investments in the company s modern dairy plant in Aylesbury which will in the near future take over a major stake of the milk which was produced in Hatfield Peverel. 15

Relevant Issues in Damstahl Land Sweden: The Swedish market for stainless steel continues having a pretty good momentum in terms of order volumes, a sign that the stocks at end users are generally at low levels. The latest development of the LME nickel price is showing an upward trend and is also creating hopes of increasing prices in Q2/16. Alfa Laval announced plans to expand its Test & Training Centre in Aalborg, Denmark to five times its current size. The main focus of the new expansion will be on liquid natural gas and other alternative fuels. Alfa Laval won a 60 mill. SEK energy-efficiency order in Russia which comprises of the delivery of compact heat exchangers for the preheating of crude oil during the refinery process. The company also reported that the announced change in management was brought to happen one month earlier than planned, as Mr. Tom Erixon succeeded Lars Renström as the new CEO and President already from 1 March 2016. 16

Relevant Issues in Damstahl Land Norway: Distributors in the Norwegian stainless steel market are replenishing their stocks and also the end user activity shows increased momentum compared to the previous months. Market participants report an elevated order activity, which is likely to be caused by the stabilization of alloy surcharges. There is a consensus belief that the market has bottomed out after a very weak 6 months. Other positive news for the Norwegian stainless market is the slight increase of oil prices in the last month, lifting the North American WTI at around 38 USD/bbl and Northsea Brent at around 40 USD/bbl. Statoil reported to stop evaluations of a potential business centre in Europe. In November 2015 Statoil started investigating the basis for a business centre outside Norway to cut costs but after thorough evaluations decided to seek for other measures to achieve additional rationalization and cost reduction. Aker Solutions announced to temporarily cut salaries for its maintenance, modifications and operations staff in Norway in response to the tough market conditions. The reductions for the senior management will be around 10% while other staff members will have their pay trimmed by 5%.The pay cuts became effective with March 2016 and will be reviewed after twelve months. Aker Solutions currently is also reported to have started the process of implementing around 450 job cuts, with the option of cutting another 450 positions until the end of the year. 17

Relevant Issues in Damstahl Land Slovenia: Generally, stocks are reported to be very low in Slovenia. Thus, as the demand for stainless steel products is on the rise, stockists will have to replenish their inventories soon. The forecast for the Slovenian economy stays positive, for the current year the GDP is expected to grow by more than 3.0%, one of the highest rates in the EU28. Also the Slovenian exports are starting 2016 on a double-digit higher level than one year ago. Gorenje Group reports sales of 1,225 mill. EUR for the full year 2015, declining by around 2% set against 2014 sales of 1,254 mill. EUR. EBITDA fell from 86 mill. EUR in 2014 to 80 mill. EUR in 2015 (-7% yoy). EBIT in 2015 declined by 19% totalling 34 mill. EUR (2014: 43 mill. EUR). The group s EAT turned from a 1 mill. EUR profit in 2014 into a 8 mill. EUR loss in 2015. Gorenje s financial figures were mainly impacted by the economic crisis in Russia alongside the rouble depreciation as well as unrest in the Ukraine, two of Gorenje s main markets 18

Relevant Issues in Damstahl Land Finland: The Finish economy still suffers from structural changes caused by the downturn of several of its leading companies including Nokia, Stora Enso, Metso, Kemira, Outokumpu, Outotec, Talvivaaran, Telia, Valmet and others who are exposed to various commodity market segments. The Finnish stainless steel market was very quiet in the second half of February but now is picking up somewhat again. Price competition became quite fierce in March when base prices and alloy surcharges reached their lowest point so far. After the silent winter period also the building and construction sector is showing some signs of life. The Äänekoski bio pulp mill and projects at the Meyer shipyard keep the Finnish stainless market busy. Caverion reports sales of 2,443 mill. EUR in 2015, corresponding to an increase of around 1.5% compared to sales of 2,407 mill. EUR in 2014. EBITDA rose from 44 mill. EUR in 2014 to around 65 mill. EUR in 2015 (+47.7% yoy). The Finnish construction company s EAT for 2015 totalled 47 mill. EUR up by 68.8% on the 2014 EAT of 28 mill. EUR. The company reports to have seen a quite stable market environment in Eastern Europe, Austria, Finland and Denmark and a positive development in Germany and Sweden. 19

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