Bi-Monthly Stainless Steel Briefing Summary of Main Industry Events Issue 27, December 2011 Contents Stainless Steel at a Glance PMI (Economic Indicator) Chinese Exports European Industry News Relevant Issues in Damstahl-Land Damstahl 2011 This report was published by Damstahl a member of the NEUMO-Ehrenberg Group. It may not be copied without the permission of the publisher.
Stainless Steel at a Glance Stainless Steel Market softening but no recession (yet) Stainless Market: The stainless steel market in Europe has lost momentum in the second half of this year. Demand on an end-user level is still satisfactory, but stockists reduced buying amid falling raw material prices. A price turning point is not in sight at the moment. Thus, de-stocking, which started already in the first half of this year will continue to the end of this year. Moreover, the end of the year is traditionally a period to reduce stocks in order to maximise cash flow and strengthen balance sheets. Cold rolled stock levels have fallen to a stock reach of ~60 days in Germany recently. Although low if measured by historic levels, most market participants consider this a level as sufficient in the current market situation. 2012: The European market is still split into stronger Northern and Central European countries and weak Southern European markets. European stainless users still plan for a moderate volume growth in 2012. But they also expected growth for 2009 until mid 2008 and the result is known. The biggest risk comes from the state-debt (not banks) crisis that could spread into the financial system. In such a scenario, banks will become again risk averse, which would delay bigger investment projects in the chemical and petrochemicals sector, power generation or infrastructure. This would harm the fragile process equipment industry in Europe. Mills: Performances of European flat mills have been disappointing in recent quarters. Falling base prices as a result of persistent over-capacity contributed to a weak Q3/11. The re-structure of the European stainless steel flat industry will be a major issue for 2012. But the extremely low market capitalisation of stainless steel mills (some are close or below the debt on their balance sheet) could become an obstacle, as the current owners will not get much premiums over debt and will have to write down a fair amount of their previous investments. PMI: The Purchasing Manager Index indicates that the European economy is at a stand still at the moment and that things get worse before they get better again sometime during in 2012. Europe is also only one part of the global economy. Other regions - important destinations for European exports are still in a better shape. China became a significant net-exporter in 2011. But in Q4/11 Chinese exports are expected to decline as the mills there have lost some of their cost advantage amid falling nickel prices. Damstahl a member of the NEUMO-Ehrenberg Group - 2 -
PMI Manufacturing Business Climate (October 2011) Climate is particularly weakening in Europe fell below break even point * below 50 the industry contracts / above 50 it is expected to expand Damstahl a member of the NEUMO-Ehrenberg Group - 3 -
China monthly Exports Strong Increase of Flat Products Exports in early 2011 Decline expected for Q4 200,000 China monthly Exports* 180,000 160,000 Flat Products Long Products 140,000 [ metric tonnes] 120,000 100,000 80,000 60,000 40,000 20,000 - Sep/11 Sep/11 * incl. Lisco Yusco shipments *excl. internal trade Damstahl a member of the NEUMO-Ehrenberg Group - 4 -
European Producers News Production at the same level as 2010 Pressure to consolidate mounting European stainless steel crude steel production has continuously improved to a level of ~700,000 t per month in the first months of 2011 but has then dropped substantially to 450,000-550,000 t in the third quarter. This year s European production will end on a similar level as in 2010 (7.4 mill. t). In Q1/12 we will most likely see an increased production volume as mill-internal stocks will have to be increased (with the exception of Outokumpu). European Mills suffered from low profitability due to falling surcharges and base prices since Q2/11. Despite a recent stabilization of mill base prices, it is expected that flat producers will remain in a very difficult financial situation for the rest of this year. Outokumpu Stainless: Operating loss of 53 million (Q2/11: -169 mill. ) including raw material-related inventory losses of some 38 mill. (Q2/11: -26 mill. ). Deliveries fell to 340 kt (Q2/11: 348 kt). Sales: 1.23 bn after 1.28 bn in the previous quarter. Outokumpu has agreed to a joint venture between Outokumpu and Italy s Tubinoxia for OSTP. Tubinoxia will buy 36% of OSTP (option: 51% within 3 years). Outokumpu plans further to reduce working capital by 250 mill. by bringing inventory days closer to 90 days by mid-2013 (from now ~110 days) and streamline its distribution network. It is planned to cut 1,300 jobs (Finland: 300, Sweden 600). Inoxum: In contrast to earlier reports, an Inoxum-IPO is still an option for ThyssenKrupp. German media reported earlier that an IPO is not an option anymore due to weak stock exchange markets. But at the moment the board of ThyssenKrupp is evaluating several offers received from private equity firms as well as industrial groups. Acerinox Group: The company achieved profits after taxes and minorities of 1 million in Q3/11 at net sales of 1.06 bn in the same period. Losses at Acerinox Spain and Columbus have been compensated by a profit of ~20 mill. at NAS (USA). Acerinox expects to reach a positive result in Q4/11 in a stagnant market. Aperam recorded an EBITDA of 62 mill. USD (but net loss of 41 mill. USD) at sales of 1.5 bn USD in Q3/11. They will focus on further industrial optimization and rationalization in Europe to reduce working capital. Aperam has broken ground on a 45 mill. investment in a new hot annealing and pickling line at Gueugnon (France) with a capacity of 520 kty. The new HAPL (production start expected for Q3/12) will replace two old lines. Damstahl a member of the NEUMO-Ehrenberg Group - 5 -
Relevant Issues in -Land: Germany / UK GERMANY: Market for stainless steel flat products commodities has weakened, whilst the order intake for long products remains unchanged on a satisfactory level. Stock levels in the supply chain are still comparatively low in Germany but not seen as critical for cold rolled flat products (~60 days). Some distributors will most likely try to reduce stocks even further until year end. Damstahl Germany remains cautiously optimistic about the market development over the next months. Negative news about Eurozone debt crisis did not have an impact on sales so far. The book Stainless Steel and Corrosion by Claus Qvist Jessen is available now also in German (please contact Damstahl Germany). As the sentiment in the German economy worsens, macroeconomic news do not (yet) justify this. Germany s GDP unexpectedly grew by 0.5% qoq in Q3/11 (seasonally adjusted). But, a rather stagnant Q4/11 is expected. Dwellings permissions increased by 22% from January to September this year (yoy) to 167,000 flats. This indicates a substantial improvement of the residential building sector which goes strong into 2012. Machinery and Process Industry stagnates as order intake grew by only 1% compared to September 2010; Domestic orders declined whilst orders for export were up (+3%). The overall order intake was above expectations. UNITED KINGDOM: The stainless steel market is sluggish affected by the uncertainty about the Ni price. A further slowdown is expected during December with the exception food processing and catering. Despite a 0.5% GDP growth in Q3/11 (yoy), production output in the UK has weakened in most months of 2011 until August. In Q4/11, a further weakening of UK manufacturing output is expected. Construction has continued to soften in recent months (yoy: -4% in August). Despite the weak market, new housing construction has grown 3% in Q2/11 (yoy) whilst commercial and public building activity remained again flat. High inflation rates have a negative impact on consumer good sales in the UK: Consumer prices were up 5.2% in September after 4.5% in the previous month. The September rate was one of the highest since the early 1990s. Damstahl a member of the NEUMO-Ehrenberg Group - 6 -
Relevant Issues in -Land: Scandinavia DENMARK: Most consumers are positive and believe in a better 2012 than 2011. The general picture is turning a little bit, now the number of customers with negative expectations regarding 2012 is increasing. Arla has some large projects going on and even more projects are expected to come. This will have a positive impact in the market. Outlook for 2012: banks analysts forecast a GDP growth in a range of 1%. Denmark is highly dependent on further development of the Eurozone and still suffers from a depressed local housing market. Danfoss: Net sales Q1-3/11: 25 bn DKK (Q1-3/10: 23.3 bn DKK, +10%). Profit before other income and expenses: 3 bn DKK (+25% yoy). Danfoss expects to reach sales of 33-34 bn DKK despite a softening market. SWEDEN: Gradually weakening demand in the Swedish stainless market - but market is still quite good. Customers are buying very much short term, due to good stainless availability and declining prices month on month (falling surcharge). In 2012 the Swedish market will most likely moderately decline. Damstahl has appointed Peter Sjödahl as new Managing Director from 1/1 2012 on. He is today sales and marketing director in the company. He is succeeding Dan Jönsson, one of the three founders of Damstahl Sweden. Dan has been working for Damstahl since 1977 and is now retiring after almost 35 years of successful service. BE Group: sales +12% (yoy) in Q3/11, shipments +13%. Operating result dropped however to 4 mill. SEK (inventory losses, currency effects and higher production costs). BE decided to consolidate inventories and streamline product range / production (Czech Republic / Poland) and cutbacks, which will affect ~100 employees. NORWAY: GDP Q3/11 growth in Norway is expected to reach 0.9% with a downside tendency. Growth in the next years will be driven primarily by the local market, with less impulses from exports. Statoil: booming oil industry - Statoil's Q3/11 net operating income was 39.3 billion NOK (+39% yoy), produced oil/gas volume: +13%. Highlight was the exploration of the Aldous/Avaldsnes field in the North Sea (40% Statoil). Damstahl a member of the NEUMO-Ehrenberg Group - 7 -