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Poland Metals Report Q3 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: July 2009 Product Code: R302-7441 Description The Polish steel industry is suffering a large drop in demand due to a collapse in the construction andautomotive industries as a result of the global financial crisis. Nevertheless, BMI’s latest Poland MetalsReport forecasts a strong recovery from 2010 as a result of infrastructural projects and the revival of theexport-oriented car industry.In the first five months of 2009, Polish crude steel output plunged 46.3% year-on-year (y-o-y) to 2.43mntonnes. While monthly output in May at 500,000 tonnes was the best result since October 2008, it wasstill down 48.5% y-o-y, and much of the modest increase in output in Q209 was related to restockingrather than a recovery in demand for end-use products. For example, in Q209, Poland’s Profil SA RollingMill, which sources feedstock from domestic steelmakers, kept production unchanged due to lowconsumer activity. Its longs production in the quarter was scheduled to total 24,300 tonnes, down 35.2%y-o-y. It expects only a modest increase in production in Q309. The decline in H109 followed a dismalperformance in 2008 when crude steel production fell by 8.5% to 9.73mn tonnes, with the declineconcentrated in the last four months of the year. The short-term economic environment is against the Polish steel industry. The high cost of electricity isexacerbating an already deteriorating situation, leading to the closure earlier this year of the country’sonly aluminium smelter, which had been in business for 43 years. The closure came amid a hike inelectricity prices which also undermined competitiveness in the steel sector. Polish steel mills,specifically those that use electric arc furnaces such as Z³omrex subsidiary Huta Stali Jakosciowych,complain that the hike in energy prices is unjustifiable and that their competitiveness is being eroded asenergy prices in other EU countries are declining. As a result, cheaper steel is being imported, depressingthe sales of Polish producers. Meanwhile, steel-using industries are exhibiting a sharp downturn. As a result of rising unemploymentand a lack of consumer credit, Poland’s once thriving residential construction sector has experienced arapid decline, while its highly export-oriented automotive industry is suffering a decline in orders withMay output falling 12.1% y-o-y. The contraction in Poland’s construction industry is also directly relatedto a forecasted 3.5% y-o-y drop in capital investment, which will in turn mean less investment ininfrastructure projects in general. This is partly due to the declining private sector participation ininfrastructure projects due to an inability to secure financing. On the basis of trends BMI observes in the automotive and construction sectors when taking into accountthe loss of competitiveness caused by high electricity prices, we forecast a 32% drop in crude steel outputin 2009 to 6.59mn tonnes. A strong recovery is expected in 2010 with growth of 10.4%, concentrated inthe second half as the construction and automotive industries make a full recovery. This trend will bestrengthened by infrastructure projects, with 12.5% growth in 2011, but growth should moderate to anaverage of around 7% in 2012 and 2013, ending the forecast period with output at 8.5mn tonnes. However, this is still below pre-crisis levels. Although we expect growth in the manufacturing of finishedsteel products, Polish steel mills will find it hard to compete with cheaper foreign producers which willrepresent an increasing share of the Polish market. The Hutnicza Izba Przemyslowo Handlowa (HIPH, thePolish Steel Association) claims that construction and infrastructural projects will raise Polish steelconsumption to 14mn tonnes in 2011. Nevertheless, Polish producers may not be able to take advantageof this recovery if their energy costs are not reduced. Table of Contents
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