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Spain Metals Report Q3 2010
Business Monitor International, May 2012, Pages: 54
The 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.
The Spanish steel industry reported a steady recovery in output from the low-point in July 2009, but this is set to be undermined in the short term by fiscal austerity measures in Spain and key export markets, as well as the end of car scrapping incentives, and in the long term by rising costs of production caused by high electricity prices and reliance on scrap steel as feedstock.
In Q110, Spanish crude steel output grew 48.3% year-on-year (y-o-y) and 16.3% quarter-on-quarter (q-o-q) to 4.28mn tonnes, with March output at its highest monthly rate since September 2008. Much of the increase in output has been due to export demand, but fiscal austerity measures in much of the eurozone will remove this source of growth. Growth in output was spurred by restocking, bolstered by the end of idling at Spanish mills. In February, production resumed at Sidenor’s Reinosa rolling mill and ArcelorMittal’s Etxebarri galvanising line and Avilés paint line, indicating growing confidence in the Spanish steel industry. The sustainability of this strong rate of growth is in doubt as Spain faces reductions in orders from its key steel-consuming industries – the automotive and construction sectors.
The housing market is likely to remain depressed, thereby threatening recovery in steel longs production. In Q210, producers of long products faced empty order books, with buyers holding back purchases to wait for lower prices and Greece pushing down price offers in southern Europe. Meanwhile, the withdrawal of last year’s car scrapping scheme in Europe’s largest markets is likely to push down purchases of flat steel and aluminium and aluminium products. The steel market will be further hampered by the conclusion of the scrapping incentives in June 2010, although is unclear how much positive impact the measures have had on Spanish automotive production, which is normally highly export-oriented. The government’s EUR800mn programme – for upgrading carmakers and parts suppliers and issuing EUR100mn worth of tax breaks to encourage research by existing manufacturers in the industry – will need to be ring-fenced against cuts if Spanish flat steel and aluminium demand is to return to pre-recession levels.
The economy is likely to shrink further in 2010, with growth at -0.6%, followed by a modest recovery in 2011 when GDP growth is set to reach 0.9%. The country's economy is rebalancing, moving away from domestic demand and toward external demand as a driver of growth. However, the path to a full rebalancing is unclear and even under fairly benign conditions, this could be a prolonged and painful process. Consequently, we do not see a rapid return to pre-recession levels of output. Indeed, by 2014 crude steel output will still be 1mn tonnes less than in 2008 at 17.53mn tonnes as Spanish producers struggle in a highly competitive external market and with the lengthy domestic downturn. Hot rolled output will similarly face an overall decline, with 2014 output 5% below 2008 levels at 17.14mn tonnes, prompting producers to consider the possibility of taking capacity offline permanently. Construction materials such as rebar will be particularly affected with production at more than 10% below pre-recession levels as the industry adjusts from years of residential housing boom.
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