BMI View: After back-to-back years of volatility in the Dutch metals sector, 2014 looks to have laid the foundation for a prolonged period of stability in terms of both production and consumption. This positive momentum in the sector is set to continue through to the end of our forecast period in 2018. BMI expects steel to continue to dominate the country's metals industry; however, we see no significant new investment in the sub-sector over the coming years. Tata Steel, the largest producer in the country, is facing up to an increasingly hostile and competitive operating environment, with cheap steel and aluminium being exported from China. Nevertheless, opportunities remain in high-quality steel, of which the Netherlands is a key producer.
Long-Term Growth In Output
After posting a contraction in both production and consumption in 2012 and 2013, 2014 heralded a turnaround for the steel industry. We expect the year to close with output up 1.4% and consumption up 2.1% y-o-y. However, BMI cautions that monthly data for steel production in the Netherlands suggests that a strong close to the year will be necessary for such estimates to become a reality. Over the first eight months of the year (correct to data published for August) output rose for five months and contracted for three. Although this leaves the market sat below where it started in 2014, we still maintain our year-end estimates.
Tata Steel Europe, the largest producer in the country, is steadily increasing investment. It is spending EUR800mn in increasing liquid steel-making capacity at IJmuiden by 500,000 tonnes per annum (tpa) to 7.7mn tpa by 2015-16, while reducing jobs by 1,000. This should significantly improve the competitiveness of its IJmuiden complex. The company is investing EUR12mn in enhancing production of specialised corrosion resistant steel with a new finishing line for hot dipped galvanised steel. As a result, the IJmuiden complex will buck the trend of capacity closures seen elsewhere in Europe, adding value to production, reducing costs and increasing volume of cold rolled products. BMI retains an optimistic outlook for the long-term future of the Dutch steel industry with a swift return to pre-2008 levels by 2014.
|Output Picking Up In Long Term|
|The Netherlands - Steel Output (kt)|
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 (EC) and member states to adopt 'economically feasible' climate and energy targets. The resolution came just two weeks after the EC 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 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 EC 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 EC launched its 'steel action plan' in June 2013 in a bid to stem decline in Europe's steel industry, which has been hit by a 30% drop in demand since 2008 leading to plant closures. EU industrial output fell to around 15% of GDP last year, well short of EC's informal goal of 20% by 2020. The US, by contrast, is re-industrialising with the help of cheap energy, thanks to the shale gas boom. Gas prices in Europe are around three times higher than in the US, prompting the IMF to warn that energy-intensive industries such as 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.