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Czech Republic Metals Report Q2 2010
Business Monitor International, April 2010, Pages: 49
Czech Republic Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Czech Republic's metals industry.
The Czech steel industry showed no signs of recovery towards end-2009 and 2010 will remain challenging, given the downturn expected in the country’s automotive industry, a major consumer of steel and aluminium, and the Czech dependence on a sluggish eurozone economy, forecasts this latest BMI Czech Republic Metals Report.
Crude steel output was down 28.2% year-on-year (y-o-y) to 4.59mn tonnes in 2009 amid a severe downturn in exports and domestic consumption. In Q409, output was up 11.0% y-o-y but down 3.5% quarter-on-quarter (q-o-q) to 1.25mn tonnes with no sign that depleted inventories had put the Czech industry back on a stable growth footing. The disappointing results reflected a dismal economic performance generally, with negative q-o-q growth. The principle causes of the contraction in the Czech steel industry were the slowdown in construction and the fall in automotive sales, which depressed the country’s domestic car production.
Increased government spending and improvements in domestic demand are likely to be the key factors driving domestic steel and aluminium sales in 2010, although the automotive industry will prove a downside risk for the metals industry. Vehicle production in the Czech Republic showed the first signs of slowdown in early 2010, having grown by a modest 2.85% y-o-y in 2009 to 975,111 units. Much of the rise was due to increased demand for new vehicles in Germany thanks to the government’s scrappage scheme. However, given that the German government has rejected any possibility of extending the scheme in 2010, the company is cutting back output, with knock-on effects for cold-rolled products used in the automotive industry. At the same time, the construction industry in the Czech Republic, another major steel consumer, has been badly hit by recession with negative growth forecast for 2009. Total capital investment has shrunk from US$52.12bn in 2008 to US$48.66bn in 2009, which is having a deleterious impact on construction steel.
The volatility of the koruna is also likely to add considerable uncertainty to the domestic steel mills as well as their customers in the Czech Republic. Meanwhile, Czech cold-rolled steel producers are struggling with high levels of debt that they need to restructure, which could affect their ability to fulfil orders. Overleveraging in the steel industry will be a major obstacle to industry expansion, making it difficult to persuade banks to finance new projects.
In the long run, production in the Czech Republic will depend on the health of major export markets – particularly the eurozone – and the domestic construction sector. Weak eurozone demand also poses risks, with our forecast for 7.1% growth in steel exports to 3.96mn tonnes in 2010 dependent upon an uptick in demand. From 2010 onwards, the sector is expected to return to growth. Strong long-term demand should give domestic steelmakers hope for improved medium- to long-term performance. However, domestic steel consumers can easily source from neighbouring Poland and Slovakia, meaning Czech mills will be under pressure to compete, while export markets – particularly in East Asia – are seeing a sharp rise in domestic steelmaking capacities at a time of moderate demand growth.
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