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Poland Metals Report Q3 2009
Business Monitor International, July 2009, Pages: 45
Poland Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Poland's metals industry.
The Polish steel industry is suffering a large drop in demand due to a collapse in the construction and automotive industries as a result of the global financial crisis. Nevertheless, this latest Poland Metals Report forecasts a strong recovery from 2010 as a result of infrastructural projects and the revival of the export-oriented car industry.
In the first five months of 2009, Polish crude steel output plunged 46.3% year-on-year (y-o-y) to 2.43mn tonnes. While monthly output in May at 500,000 tonnes was the best result since October 2008, it was still down 48.5% y-o-y, and much of the modest increase in output in Q209 was related to restocking rather than a recovery in demand for end-use products. For example, in Q209, Poland’s Profil SA Rolling Mill, which sources feedstock from domestic steelmakers, kept production unchanged due to low consumer 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 dismal performance in 2008 when crude steel production fell by 8.5% to 9.73mn tonnes, with the decline concentrated in the last four months of the year.
The short-term economic environment is against the Polish steel industry. The high cost of electricity is exacerbating an already deteriorating situation, leading to the closure earlier this year of the country’s only aluminium smelter, which had been in business for 43 years. The closure came amid a hike in electricity prices which also undermined competitiveness in the steel sector. Polish steel mills, specifically those that use electric arc furnaces such as Zlomrex subsidiary Huta Stali Jakosciowych, complain that the hike in energy prices is unjustifiable and that their competitiveness is being eroded as energy prices in other EU countries are declining. As a result, cheaper steel is being imported, depressing the sales of Polish producers.
Meanwhile, steel-using industries are exhibiting a sharp downturn. As a result of rising unemployment and a lack of consumer credit, Poland’s once thriving residential construction sector has experienced a rapid decline, while its highly export-oriented automotive industry is suffering a decline in orders with May output falling 12.1% y-o-y. The contraction in Poland’s construction industry is also directly related to a forecasted 3.5% y-o-y drop in capital investment, which will in turn mean less investment in infrastructure projects in general. This is partly due to the declining private sector participation in infrastructure projects due to an inability to secure financing.
On the basis of observed trends in the automotive and construction sectors when taking into account the loss of competitiveness caused by high electricity prices, we forecast a 32% drop in crude steel output in 2009 to 6.59mn tonnes. A strong recovery is expected in 2010 with growth of 10.4%, concentrated in the second half as the construction and automotive industries make a full recovery. This trend will be strengthened by infrastructure projects, with 12.5% growth in 2011, but growth should moderate to an average 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 finished steel products, Polish steel mills will find it hard to compete with cheaper foreign producers which will represent an increasing share of the Polish market. The Hutnicza Izba Przemyslowo Handlowa (HIPH, the Polish Steel Association) claims that construction and infrastructural projects will raise Polish steel consumption to 14mn tonnes in 2011. Nevertheless, Polish producers may not be able to take advantage of this recovery if their energy costs are not reduced.
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