BMI View: BMI 's latest Austria Metals Report assesses the prospects for growth in the steel industry over the medium term following a return to growth in output and a continuation in year-on-year ( y-o-y ) growth in consumption during the 2013 full-year . Within it, our forecasts for the industry run out to 2018. The report examines the risk and investment strategies of leading players in the industry. It also examines the impact of a decline in the eurozone, particularly the German market, on Austrian exports.
The performance of Austria's steel industry returned to growth once more in 2013, after deteriorating by 0.6% in 2012. Indeed in 2013, crude output increased by 0.5% to 7.46mnt. BMI estimates that consumption levels continued their upward trend for the fourth year running in 2013, rising by 1.2% from 4.78mnt as at December 31 2012 to 4.84mnt a year later. Going forward, BMI is forecasting both output and consumption to increase in 2014 by 0.8% and 1.0%, respectively, y-o-y. Looking further ahead into 2015, while we forecast consumption to continue accelerating, we see production contracting in volume once more to close the year at 7.443mnt compared with 7.518mnt a year earlier.
We note, however, that fluctuations in the monthly data for steel output from Austria suggest that volatility is set to remain in the near term. Indeed according to data from the World Steel Association, Austrian monthly output at the end of September 2014 was below where it started the year. In September output reached 622,000 tonnes, compared with 681,000 tonnes in January 2014. What is more during the first nine months of the year, output levels have reached as high as 706,000 tonnes in March and also fallen as low as 622,000 tonnes in February, June, and March, respectively. BMI notes that such fluctuations in output levels are indicative of production in the broader European steelmaking arena too.
|Slight Decline On The Horizon|
|Austria - Steel Output & Growth|
Austrian steelmaking has suffered from the structural oversupply of standard grades, which has driven down prices on the EU market despite cutbacks in output. This has put downward pressure on margins, although there is no immediate sign of any idling of capacity. Despite the fact that volume has contracted, Austria still outperformed the 4.6% contraction reported for the whole of the EU. Austria's dominant steelmaker Voestalpine is also upbeat, expressing its confidence that business will pick up. Voestalpine's net profit increased 0.2% y-o-y to EUR523mn (USD711.7mn) in FY13/14, ended March 31 2014. Going forward volume may not increase, but sales could be boosted by a rise in product prices. Capacity constraints will prevent any further significant growth in crude steel beyond pre-crisis levels over the long term, although BMI expects investment in downstream sectors.
On an intercontinental level, in February 2014 the European Parliament passed a resolution backing a plan to revive the bloc's steel industry, calling on the European Commission and member states to adopt "economically feasible" climate and energy targets. The resolution came just two weeks after the Commission scaled down its 2030 climate and energy targets and underlines a new sense of pragmatism in Brussels at a time when European growth is slow. In a move unlikely to be popular with the green lobby, the resolution said the most energy efficient steel plants in Europe should not have to bear any additional costs resulting from EU climate policies. It was not immediately clear how the resolution will tally with attempts by the Commission to prop up the EU carbon prices by delaying the sale of, or backloading, carbon permits - a major additional cost for industries like steel.
The Commission launched the so-called "steel action plan" in June last year in a bid to stem a decline in Europe's steel industry, hit by a roughly 30% drop in demand since 2008 that has led to plant closures. EU industrial output fell to around 15% of GDP last year, well short of an informal goal of 20% by 2020, set by the Commission. The US, by contrast, is reindustrialising with the help of cheap energy thanks to the shale gas boom. Gas prices in Europe are around three times higher than those in the US, prompting the IMF to warn that energy intensive industries like cement and steel could relocate if action is not taken. The IMF estimates these industries employ over 30mn people. Eurofer estimates the European steel industry, which employs millions of people directly and indirectly, has suffered a loss of about 40,000 jobs in recent years.