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Spain Metals Report Q3 2009
Business Monitor International, July 2009, Pages: 45
Spain Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Spain's metals industry.
Activity levels in the housing market and levels of spending on consumer durables are likely to remain low in 2009 due to anticipation of further prices falls and tightening credit conditions, prompting a sharp slowdown in domestic consumption of steel and aluminium, according to the latest Spain Metals Report.
In the first five months of 2009, Spanish crude steel production fell 40.4% year-on-year (y-o-y) to 5.23mn tonnes. In May, output was down 41.1% y-o-y and 0.6% month-on-month (m-o-m) at 1.16mn tonnes, with no let-up in the decline in demand for Spanish manufactured steel on both domestic and export markets. Faced with a lack of liquidity, cash-flow problems prompted heavy discounting. Customers are facing falling sales, rising arrears and lack of credit. While crude output has recovered from the disastrous lows in the December-February period when it dipped below 1mn tonnes per month, much of this was intended to clear stocks and raise prices. This only enjoyed modest success. Spanish producers are seeing prices fall, but at the same time scrap and billet prices are not softening. Attempts to push higher costs onto customers had largely failed in Q209. The increase in output from March is largely down to restocking and relatively small purchases, with the situation in the automotive, construction, shipbuilding and other metals-consuming industries not showing any signs of upward movement, leading to sharp declines in both long and flat product markets.
In response to the deteriorating situation, Spanish steel and aluminium plants are radically reducing capacity. In May, Alcoa reduced primary aluminium production at its three Spanish smelters by 18% in line with its global cutbacks. In February 2009, ArcelorMittal Spain indicated it was planning to shut down one of its two blast furnaces in Gijón – which produces heavy plate, wire rod and rails – in Q2 and Q3. Activity could also be reduced at the company’s flat product plants in Sestao and Sagunto, Valencia, if the poor economic situation persists, according to local media reports. Production rates at ArcelorMittal Spain were due to fall by 35% or more for both long and flat products in H109, according to the company. ArcelorMittal received government approval in June to temporarily lay off up to 12,000 of its Spanish workforce until end-2009 as it sought to reduce its European capacity. The lay-offs could be extended to next June in the event of a continuing downturn.
Key steel and aluminium-consuming industries are set to struggle throughout 2009. One of the key factors affecting the Spanish steel and aluminium industries is the collapse in domestic and European car production. As a result of the fall in automotive output and production of household appliances and other industrial consumers of flat products, the report forecasts that hot rolled production will fall by more than 30% to under 13mn tonnes in 2009 as cold rollers supplying the automotive industry cut orders. Meanwhile, the construction industry is in a state of collapse, faring the worst in the EU. Consequently, the report is forecasting a drop in rebar output of over 40% to 2.61mn tonnes. As output will fall to low base, we expect high rates of growth in rebar production with a rise in new homes starts expected from H210. Another factor facing Spanish metals producers is high energy costs, which by end-2008 had led to a 50-100% rise in electricity costs. Some producers claimed electricity tariffs were a greater problem than the economic downturn.
This report forecasts apparent crude and finished steel use in Spain falling 29% and 22% respectively in 2009, with the domestic market stagnating in 2010 before limping to recovery from 2011, with the impact of the recession on the Spanish economy set to linger for some time to come. More troubling for Spanish steel mills is their loss of competitiveness due to energy prices and the forecast is for sharper falls in domestic crude production in 2009. Monthly output for the rest of 2009 will remain unchanged from May levels, totalling 12.82mn tonnes by the year-end, down over 30% y-o-y. Domestic production will lose out to foreign imports, although these are likely to also fall by over 24% to 8.87mn tonnes in 2009. A Europe-wide recession and the still relatively strong euro will cause serious problems for the export sector. The report does not conclude that the Spanish steel industry will return to 2008 output levels over the next five years, with Spanish producers continuing to face strong competition from Asian producers.
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