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Poland Metals Report Q1 2010
Business Monitor International, Jan 2010, Pages: 50
The 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.
Polish metals producers will witness a resurgence in output in 2010 and the industry should continue to attract investor interest. However, high electricity prices and the expected appreciation of the zloty over the medium-term could undermine the pace of growth, with local companies losing out to more competitive foreign producers, according to the latest Poland Metals Report.
In the first 10 months of 2009, Polish steel output was down 32.8% year-on-year (y-o-y) to 5.92mn tonnes. In H209, output settled at around 670,000-690,000 tonnes per month. While this was an improvement on the 530,000 tonnes per month in the first half of the year, there was no evidence that the industry was seeing a sustained revival or month-on-month production growth that would mark a recovery to pre-recession levels. However, October saw the first growth y-o-y, with output up 4.5% compared with the previous October to 690,000 tonnes, albeit from a low base by historical standards. Given that domestic demand has held up relatively well, and with the eurozone tentatively emerging from recession, we expect industrial output to return to positive growth in 2010, and forecast an average expansion rate of 2.1% following the 6.0% decline estimated for 2009. This should filter through into a revival of the steel industry in 2010, assisted by the depreciation of the zloty against the euro which will stimulate exports. Crude steel output should rise by 11.7% y-o-y to 8.37mn tonnes and HR output by 13.7% to 7.32mn tonnes.
In the longer term, investors will continue to be attracted to Poland as a significant production base in Central and Eastern Europe (CEE). In November 2009, ArcelorMittal opened a new cold rolling mill in Kraków. Investment amounted to nearly PLN98mn (US$33mn). Output is targeted at automotive, construction and household appliance manufacturers.
Growth in car production and construction, along with household appliances, should continue to stimulate both steel and aluminium markets. This trend will be strengthened by infrastructural projects and by 2014, annual crude steel output should exceed pre-recession levels at 11.06mn tonnes. Hot rolled output should rise at a faster rate, reaching 9.06mn tonnes in 2014 as Poland becomes an increasingly important producer for the EU market. The depreciation of the zloty against the euro, which has helped stem the deterioration in Polish steel output during the EU recession, is likely to reach its bottom limit in 2010 and appreciation is expected in the rest of the forecast period, in line with the country’s economic recovery. The extent to which this harms steel exports will depend on the strength of export markets, in particular Germany. Polish steel mills may also find it hard to compete with cheaper foreign producers, which will represent an increasing share of the Polish market. The Polish finished steel market will total 18.7mn tonnes by 2014, a 25% increase on 2008 levels.
A major hurdle facing Polish metals producers is the high cost of electricity, which led to the closure of the country’s only aluminium smelter in 2009 after 43 years in business. The closure came amid a hike in electricity prices which is also undermining competitiveness in the steel sector. Polish steel mills, specifically those that use electric arc furnaces (EAFs) 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.
In the aluminium sector, despite the closure of domestic primary production, Polish aluminium net imports fell by nearly half to 234,000 tonnes in 2009, on the back of a 38.5% fall in domestic consumption to 450,000 tonnes. Recycled aluminium will represent a higher proportion of the market than before, falling just 4.1% to around 215,100 tonnes. The recovery will be brisk from 2010, when aluminium consumption will rise 28.7% in line with a revival in the automotive industry. By 2014, demand will total around 825,500 tonnes, up 12.8% over 2008 levels and representing a new high.
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