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Austria Metals Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2009 Product Code: R302-8238 Description The Austrian steel industry is witnessing a slow recovery from the economic downturn, but the sector isplagued by other uncertainties as a result of continued volatility on European markets, according toBMI’s Q409 Austria Metals Report.In H109, Austrian crude steel output was down 37.6% year-on-year (y-o-y) to 2.46mn tonnes. However,the industry is slowly recovering from a February low of 349,000 tonnes, reaching 525,000 tonnes in June(down 17.2% y-o-y), amid signs that demand and prices are stabilising. As such, there is an air ofgrowing optimism surrounding the Austrian steel industry. Between 60-80% of Austrian aluminium andsteel production is exported, with the hard-hit automotive industry comprising around 25% of sales. Consequently, producers are highly exposed to the economic downturn. While the Austrian economy hadheld up well against the onslaught of the global credit crunch, we caution that as a result of the realeconomic costs from the contraction in credit availability and forced deleveraging process, the domesticeconomy will not be able to deflect a recession in 2009. Despite reporting a Q1 FY2009/10 earnings before interest and taxes (EBIT) loss of EUR24mn (downfrom a profit of EUR358mn in Q1 FY2008/09), Austrian steelmaker Voestalpine has stuck to its full-yearoutlook that it will make a profit at an operating level and will break even on its net profit line. However,Citigroup has been slightly less sanguine, predicting positive EBIT figures for the financial year toMarch 2010, but a net loss of around EUR9mn. This is based on the assumption of a modest improvementin markets in the US and Europe, particularly for automotive components and infrastructure spending. The German automotive industry, a key market for Austrian steel, experienced strong but artificiallyinflateddomestic demand and may see a significant fall next year. The slump in German demand willmean that carmakers could produce 5% fewer vehicles y-o-y, a decrease in numbers to 4.9mn units, in2010, according to BMI forecasts. Also, Voestalpine’s long-term price contracts will mean it will sufferfor a longer period of time than its rivals and any stabilisation will have a time-lag because of plantshutdowns. However, its raw material negotiating power should provide a buffer in a downturn. End-user demand for flat products remains weak and the summer season will see a further deterioration.However, buyers are coming back to the market, albeit only for relatively small quantities to replenishtheir stocks, having run them down in H109. Although producers across Europe have lifted their priceoffers, buyers are reluctant to accept the increases. With the US dollar weakening against the euro andsterling, imported material is becoming more competitive while exports are less attractive outside theeurozone. BMI forecasts a slow and unsteady recovery in monthly volume in H209, but total output for the year willbe down by 28% to 5.46mn tonnes, the lowest annual total since 1996. The beginnings of an economicrecovery in the eurozone in 2010 offer some respite to the export sector and international creditconditions, although the domestic economy will see zero growth in 2010. This will result in a sluggishrecovery in the domestic steel industry with production set to rally from Q210, with output reaching6.12mn tonnes. BMI does not envisage a return to pre-recession levels over the foreseeable future due toincreased competition from the CIS and Turkey. By 2013, output should have recovered to 6.59mntonnes, which is still 13.2% down on 2008 levels. Our forecast is supported by VoestAlpine’s recentstatement that a return to 2007 production levels ‘is likely only over a period of several years.’ At thesame time, finished steel consumption will increase at a more rapid rate, returning to around 2007 levels(4.75mn tonnes) by 2013, in turn fuelling a rise in imports which, having fallen 39% to 2.5mn tonnes in2009, will return to the 3.8mn mark by 2013. Table of Contents
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