Damstahl Bi-Monthly Stainless Steel Briefing December 2012 Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 1 -
Damstahl Bi-Monthly Stainless Steel Briefing Issue 32, December 2012 Contents Stainless Steel at a Glance European Industry News & Business Climate (PMI) Market Performance: Relevant Issues in Germany Netherlands United Kingdom Denmark Sweden Norway Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 2 -
Stainless Steel at a Glance Autumn 2012: Approaching the Trough Demand: The stainless steel market in Europe does not show signs of an improvement at the moment. Demand from both end users and stockholders is without any clear direction at the moment. The substantial Ni price drop in October/November down from a peak of almost 19,000 USD per t to 16,000 USD per t in mid November kept stockholders out of the market. But it seems that the Ni price has reached its floor level in the meantime. However, any raw material price increases in December will come too late to initiate up-stocking this year. Close to year end, distributors strive to polish up their balance sheets and P&L accounts by minimizing inventories. But, if history repeats itself, they will all be back in the market in Q1/13. End Use Segments: It is expected that end use will remain flat in the next weeks and months. Even in the longer term, it is expected that the European stainless steel market will not show any volume growth. SMR expects a 2% drop for both years 2012 and 2013, with the biggest risk for a demand drop being present in Italy. There is not much dynamic present in the most important stainless steel end use segments in Europe including process equipment, automotive and building/construction. The outlook for the next months remains weak, but, there are several indications that the demand from end users will improve as 2013 progresses. Thus, HY2/12 will most likely be better than HY1/13. A bright spot will be oil/gas which will grow at double digit rates in Europe next year. The German Mechanical Engineering Federation (VDMA) expects a growth in production of process equipment in 2013 of at least 2%. Mills: The profit situation of the mills will remain disappointing in Q4/12. Low alloy surcharges (main driver for profits at mills) and more or less stagnant base prices indicate that there is no turnaround in sight. The good news for the European industry is that the Outokumpu-Inoxum deal is finally confirmed by the EU Commission. But it is a yes with a significant remedy. Outokumpu has to find a buyer for Inoxum s Terni facility, plus they have to sell some service centres. The company has received a six month period to find potential buyers, negotiate and close the deal, which seems unrealistically short. However, at the end of the day, the market will have again four EU flat product players, keeping the level of competition high, and prices low. At least until Outokumpu will close 1 or 2 of its German melt shops in 2015 and 2016. China: the sluggish stainless steel market situation in China brings the Chinese mills back into the export markets. Despite low global market prices, Chinese mills increased flat product exports to ~140,000 t in September. Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 3 -
European Industry News Disastrous Results, but a Market Leader is born! The European stainless steel crude steel production dropped from 2.0 mill. t in Q2/12 to 1.6 mill. t in Q3/12. Compared to Q3/11, production was still 2% higher. Year-to-date the production reached 5.7 mill. t in the first 9 months of 2012. The production in the Damstahl countries fell by 11% (yoy) to around 1.6 mill. t in the same period. Aperam: Stainless steel shipments were 410,000 t in Q3/12 (Q2/12: 433,000 t), corresponding to a decrease of 5%. Sales decreased by 11% in Q3/12 to 1,207 mill. USD (Q2/12: 1,351 mill. USD). Compared to Q3/11, sales dropped by 20%. Aperam reported an operating loss of 29 mill. USD in Q3/12 (Q2/12: operating loss of 19 mill. USD). The company recorded a 17 mill. USD net loss in Q3/12 (after minus 28 mill. USD in Q2/12). Outokumpu Stainless: Total external deliveries were 325,000 t in Q3/12, compared to 402,000 t in Q2/12 (-19%). Q3/12 sales decreased by 22% to 974 mill. EUR (Q2/12: 1,274 mill. EUR). Compared to Q3/11, sales dropped by 21% in Q3/12. Outokumpu recorded an operating loss of 89 mill. EUR, 10% higher than the operating loss of 80 mill. EUR in Q2/12. EBITDA: minus 32 mill. EUR (after minus 12 mill. EUR in Q2/12). Outokumpu plans to start ramp-up of the new ferrochrome smelter in Tornio during Q4/12 which will make the group basically self-sufficient. Outokumpu/Inoxum: The European Commission finally approved the merger in November with conditions. The Commission had concerns that the tie-up of the two largest suppliers of cold rolled steel products could lead to less competition and raising prices. The approval is conditional to the divestiture of Inoxum's mill in Terni (AST) and certain European service centers. The divestment of the plant in Terni ensures that the creation of a new European market leader will not be detrimental for consumers and stockholders in Europe. Outokumpu will have six months to complete these divestments. So far no potential buyers have officially come forward. Even with this remedy, the acquisition yields 200 mill. EUR cost savings for the new company, comparing to 60-70 EUR / t. Please refer to the diagram on the next page for the new world order in stainless steel flat products. Schmolz + Bickenbach: Revenues in Q3/12 were 832 mill. EUR (Q3/11: 933 mill. EUR). Compared to the previous quarter, the revenues decreased by 12% in Q3/12. EBITDA in Q3/12: 20.6 mill. EUR (Q2/12: 58.9 mill. EUR). In comparison with that, the EBITDA amounted 49.6 mill. EUR in Q3/11. Schmolz + Bickenbach posted an operating loss of 18.9 mill. EUR in Q3/12 (compared to an operating profit of 21 mill. EUR in Q3/11). The company recorded a net loss of 41.9 mill. EUR in Q3/12 (compared to a net loss of 3.9 mill. EUR in Q3/11). Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 4 -
Consolidation in Europe The New World Order in Stainless Steel Flat Product Capacities (Slab) * after closure of Bochum & Krefeld and divestment of Terni Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 5 -
Where do we stand in the Business Cycle? PMI Status October 2012 Slight Improvement in all Regions but Europe still weak. Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 6 -
China Monthly Exports September 2012 Flat Product Exports reached again the Level of Q2/12. Long Product Exports slightly up too. Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 7 -
Relevant Issues in Damstahl-Land Germany, Netherlands, United Kingdom Germany: The stainless steel market was relatively quiet throughout Q3, suffering from softening demand. Especially stockholders are not willing to buy more stainless steel in order to keep stock levels in line with the reduced demand. Q4/12 might turn out to be the weakest quarter in 2012. ZEW s (Zentrum für Europäische Wirtschaftsforschung Centre for European Economic Research) indicator of economic sentiment for Germany has dropped by 4.2 points in November 2012 reaching now a level of minus 15.7 index points. The indicator s negative balance shows that the surveying experts rather expect the German economy to get worse before it will get better. GEA Group: Order intake grew by 5.3% in Q3/12 (yoy). The order intake grew by 5.4% (qoq). Revenues increased by 3.5% (yoy). The consolidated profit increased by 22.8% from 72.8 mill. EUR in Q2/12 to 89.4 mill. EUR in Q3/12 (85.9 mill. EUR in Q3/11). For the entire year, the GEA Group expects a 5% order growth over 2011. The heat exchanger division has recently booked two large orders from the energy and oil/gas sector (value: 48 mill. EUR) and the segment process equipment has achieved three orders (value: 60 mill. EUR). Chemical industry: The activity in the German chemical industry remained depressed in Q3/12. The association of the chemical industry does not expect a recovery soon, and investments will remain at a reduced level next year. Weak building/construction market: The value of orders received in the main construction industry and civil and underground engineering decreased by 3.8% in September 2012 (yoy). Main construction increased by 2%, while underground engineering fell by 10%. Netherlands: The stainless steel market situation is not stable at the moment. Users of stainless steel are not willing to take any risk and are reluctant to place longer term orders. Compared to Q4/11, the demand in Q4/12 will be lower. Prices are decreasing, making the Dutch market waiting for more action and positive news. Nevertheless in some segments the demand is still growing for example in the energy market. According to Statistics Netherlands, Dutch industrial production in all industrial sectors was lower in Q3/12 than in the same period last year. The strongest decrease occurred in the construction industry (-8.0%). In September, the manufacturing output dropped by 0.6%. The largest decrease was recorded in the transport equipment sector (-9%). Output also fell at electro-technical products and machinery (-5%), basic metals and metal products (-3%). On the other hand, output in the oil/gas sector and chemical industry was nearly 4% up in September 2012 (yoy). United Kingdom: Stainless steel stockholders are reporting a very slow market in the UK for commodity flat products, while the market in the process industry and the food, beverage and dairy markets are fairly buoyant. The UK economy grew by 1% in Q3/12, following three consecutive quarters of negative growth. The GDP growth of 1% was the highest since Q3/07, but can partly be attributed to unusual factors in both Q2/12 and Q3/12. For instance the ticket sales for the London 2012 Olympics and Paralympics added 0.2% to GDP growth in Q3/12. The UK construction output fell by 2.6% in Q3/12 compared to Q2/12. Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 8 -
Relevant Issues in Damstahl-Land Scandinavia Denmark: The Danish government expects a slump this year. GDP will only grow by 0.2% in 2012, but 1.6% growth is however forecasted for 2013. Surprisingly private consumption was weak this year. A reform of the early retirement scheme has reallocated money back to consumers, which was surprisingly not used for consumption. Danfoss: Net sales were 8.8 bn DKK in Q3/12 compared to 8.4 bn DKK a year ago (+4.7%). Compared to Q2/12, net sales dropped by 1% in Q3/12. The operating profit was 1.1 bn DKK in Q3/12 (Q3/11: only 0.5 bn DKK). Compared to Q2/12, the operating profit increased by 11% in Q3/12. Sweden: The Swedish stainless steel market has geared down. Many end users have reduced staff or shifted to 4 days working weeks. 2012 will still be (as a whole) a pretty good year, whereas HY1/12 was better than HY2/12. But, uncertainty for 2013 is high and many fear that volumes will fall in 2013. Alfa Laval: Order intake fell by 9% in Q3/12 (7.3 bn SEK) compared to Q3/11 (8.0 bn SEK). Sales dropped by 7%, operating result was 1.2 bn SEK (operating margin: 16.7%). Alfa Laval received orders for 475 mill. SEK in Q3/12, including an order to supply boilers to an offshore oil production vessel in Vietnam (order value 50 mill. SEK, finalized in 2013). In August 2012 Alfa Laval acquired Gamajet Cleaning Systems, Inc., a leading provider of tank cleaning machines and systems in North America. In this way a new company, Alfa Laval Tank Equipment, Inc., has been created. Alfa Laval also acquired Ashbrook Simon-Hartley Ltd., a leading provider of belt filter presses. BE-Group: Net sales dropped by 20% in Q3/12 (yoy), amounting to 1,020 mill. SEK. Compared to Q2/12, the net sales fell by 25%. Shipped tonnage decreased by 11% in the same period. Compared to Q2/12, operating result fell by 54% in Q3/12. During Q3/12, the BE-Group initiated a process to sell its operations in the Czech Republic. Outlook for the export oriented Swedish economy has darkened the weaker global economy will lead to a lower GDP in 2012 than expected. It is likely that the GDP growth will reach only 0.9% this year and 1.8% in 2013 (previous forecast 2.7%). Norway: The stainless steel market in Norway is following the latest drops in alloy element pricing. The industrial market shows a rise in output in sectors producing capital goods (machinery, ships, oil platforms etc.). A growth in new orders from domestic markets explains this positive development. High investments within oil and gas activity formed the basis for this growth. The average capacity utilization is estimated at 82.3% in Q3/12. Prospects of sustained oil and gas investments make the short-term outlook for Q4/12 positive and Norway again the bright spot in Damstahl Land. Statoil: Oil/gas production grew by 10% in Q3/12 (yoy) and 8% compared to the average of 2011. Their operating income increased by 4% (40.9 bn NOK) compared to 39.3 bn NOK in Q3/11, but declined compared to Q2/12 by 32%. Net income increased by 47% from 9.9 bn NOK in Q3/11 to 14.5 bn NOK in Q3/12. The Norwegian construction industry stagnated (+0.4%) in Q3/12 compared to Q2/12 but is up by 8.1% yoy. The civil engineering segment increased by 3.2% in Q3/12 compared to Q2/12 and even 20% yoy. Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 9 -
Report: Stainless Steel in Damstahl-Land, No. 11, March 2012 Damstahl 2012, Damstahl - a member of the NEUMO-Ehrenberg-Group - 10 -