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Germany Metals Report Q4 2009
Business Monitor International, Oct 2009, Pages: 40
Germany Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Germany's metals industry.
German metals industries are set for a massive downturn in 2009 and recovery will be a slow process, further hampered by deterioration in the competitiveness of domestic production, according to BMI’s latest Germany Metals Report.
Government stimulus measures such as the car scrappage scheme were crucial to reviving the economy in H109 and are beginning to filter through into increased steel and aluminium output. According to the World Steel Association, in the first seven months of 2009, German crude steel output fell 41.4% year on year (y-o-y) to 16.53mn tonnes. Despite output being down 28.8% y-o-y in July, it was up 7.2% month-on-month (m-o-m) at 2.69mn tonnes, the highest monthly level since November 2008. The Federal Statistical Office (Destatis) reported that steel production rose to 2.9mn tonnes in August. Nevertheless, the overall macroeconomic picture remains weak in Germany, with real GDP now expected to contract by 6.0% in 2009. In this context, BMI forecasts output falling by around 34% to 30mn tonnes, which is more pessimistic than the 31-33mn tonnes and 30% decline forecast by Wirtschaftsvereinigung Stahl (German Steel Federation, WV Stahl).
BMI’s automotive team is not optimistic about sustained growth in the German car industry beyond the artificially inflated domestic demand created by the government’s car scrappage scheme. Although we expect some recovery in the commercial vehicle sales in 2010, the fall in the passenger car market will act as a drag on overall sales, taking end of year sales down 20% y-o-y and dragging output down by 5%. This will feed into the steel and aluminium markets, with the German flat products markets likely to remain depressed throughout H110. In the other main market for metal, construction, the German government’s EUR70bn stimulus plans for infrastructure projects are expected to have some positive impact on the country’s construction sector in 2010, giving encouragement to longs producers. Aside from the current market downturn, the main risk factor facing German aluminium smelters and to a lesser extent the steel industry – principally in electric arc furnaces – is the high price of electricity, which makes up more than 40% of the cost of primary aluminium production. Producers claim that this is a greater long-term threat than the recession and undermines German competitiveness. BMI believes that, as a result, German producers will be unable to take full advantage of the growth in domestic and European consumption over the next five years.
BMI forecasts apparent crude steel demand falling 38.8% y-o-y to 29.6mn tonnes in 2009, with finished steel demand falling at a similar rate to 27.5mn tonnes. As such, crude steel output will fall 35% to just under 30mn tonnes and hot-rolled production will decline 34.6% to 27.6mn tonnes. A modest rebound in 2010 should see crude and finished steel consumption rise by around 5.7% to 31.3mn and 29.1mn tonnes respectively, leading to 4.6% and 3.5% growth in crude and hot-rolled output. Meanwhile, in 2009 a 41.7% decline in aluminium consumption to 2.03mn tonnes will lead to a 42.4% fall in production and 42% drop in imports to 318,761 tonnes and 2.21mn tonnes, respectively. However, the recovery in aluminium will be stronger than seen in the steel sector as a result of increased demand for new applications as a lightweight substitute for steel, particularly in the automotive industry. Consequently, 2013 primary aluminium output will approach 550,000 tonnes, close to pre-recession levels, and exports should reach 1.62mn tonnes. However, apparent aluminium consumption will surge to 3.92mn tonnes, with most of the increase supplied by imports which will increase to 3.87mn tonnes.
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