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Czech Republic Metals Report Q4 2010
Business Monitor International, Oct 2010, Pages: 52
Business Monitor International's 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 the Czech Republic's metals industry.
The Czech steel industry is set to endure weakening growth over coming months, with a significant risk of a contraction in Q410 and more broadly into 2011 as it suffers from the slowdown in demand from the eurozone, according to BMI’s latest Czech Republic Metals Report.
In the first seven months of 2010, Czech crude steel output was up 27.4% y-o-y to 3.12mn tonnes. However, output in July was the lowest since October 2009, with production falling each month from March. BMI believes that export weakness, both for semi-finished products and key steel-using industries, such as the automotive sector, are dragging down the recovery of the Czech steel industry. Industry growth will be heavily linked to eurozone demand (particularly that from Germany) going forward, given that exports make up are 72% of GDP overall, with almost one third sent Germany, and 57% going to the eurozone as a whole. As a highly trade-integrated economy, the Czech Republic is heavily exposed to fluctuations in final demand, with Germany's deep recession and concomitant collapse in industrial orders, having a substantial impact on the Czech steel industry. This is in stark contrast to neighbouring Poland, where a more internal demand-driven growth model (and analogously a lower degree of trade integration), has kept the economy ticking along during the global downturn, and has prevented outright recession.
Given our view that eurozone demand will remain weak through the medium term (with German growth forecast to fall to 1.5% in 2011, from 2.0% in 2010), we do not believe that the Czech Republic’s steel industry will undergo a V-shaped recovery. Key sectors determining output will be the construction, automotive, industrial tools, machinery and consumer goods industries. These are witnessing varying levels of demand as a result of weaknesses in the domestic and external markets for end-products. On the downside, the German consumer is going to remain highly subdued. This casts a shadow over hopes of a revival in exports of Czech steel, and products that utilise steel products, forcing players in the sector to diversify markets.
The volatility of the koruna is also likely to add considerable uncertainty to the domestic petrochemicals producers as well as their customers in the Czech Republic, particularly in the export-oriented automotive sector. This will influence decisions by domestic petrochemicals consumers that can easily source from neighbouring Poland and Slovakia. Consequently, Czech plants will be under pressure to compete, while export markets – particularly in the Middle East – are seeing a sharp rise in domestic production capacities at a time of moderating demand growth.
While prospects may seem gloomy, BMI believes that restocking and modest recovery will lead to a 9.2% rise in crude steel output to just over 5mn tonnes, and a 10.5% rise in hot-rolled output to 4.2mn tonnes. However, the recovery will be a drawn out process, with dampened demand in the eurozone set to ensure no speedy pick up in steel output growth rates until 2012. Nonetheless, by 2014, we believe output should be climbing to new highs, despite the setback caused by ArcelorMittal’s decision to close its Ostrava operations.
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