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Italy Metals Report Q4 2010
Business Monitor International, Oct 2010, Pages: 45
Business Monitor International's Italy Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Italy's metals industry.
Domestic metals production in Italy looks to be on the mend. However, despite the apparent improvement, we stress that this partly reflects base effects – given the severity in the drop in industrial output during 2009 – rather than reflecting a more fundamental demand recovery. Low capacity utilisation suggests that domestic firms have not secured sufficient new orders to significantly ramp up production, according to BMI’s latest Italy Metals Report.
In the first seven months of 2010, crude steel output grew 36.2% y-o-y to 15.7mn tonnes, with May output the highest since October 2008, at 2.47mn tonnes, according to data from the World Steel Association. However, we warn that this in part reflects base effects rather than a more fundamental recovery. Capacity utilisation is still barely above 80%, indicating the Italian steel industry has some way to go before it returns to pre-recession levels.
Exports will be crucial to the recovery of the metals industry as Italy’s recovery is lagging its key eurozone peers, Germany and France, and the risk of a double-dip recession still looms. Although industrial output appeared to begin a tentative recovery from mid-2009, the steel industry was lagging behind, indicating that inventories need to be run down further before output resumes sustained growth. In terms of volume, imports are rising faster than exports, indicating that the industry is losing competitiveness.
Although the economy has shown clear signs of tentative recovery ahead, we expect a fragile and weak recovery to act as a drag on the metals industries over the remainder of the year. The economic backdrop will deter large-scale capital investments, meaning that a strong rebound in the steel market may be difficult to attain. As such, we restrict our steel consumption growth to a modest 8.4% y-o-y, to 28.47mn tonnes in 2010, before growing more strongly by 9.5% to 31.17mn tonnes in 2011. However, a return to pre-crisis levels of consumption is unlikely before 2014.
Although BMI forecasts a 35% increase in primary aluminium output in 2010, to over 121,300 tonnes, Italy’s total smelter operation rates will still be little more than 60%. Indeed, it could take until 2012 before smelting operations become commercially viable to run at full capacity. There is a strong likelihood that the Fusina smelter will be closed as part of Alcoa’s restructuring of operations in Italy, in which case the country will be left with just one smelter with capacity of 150,000tpa. However, with aluminium prices expected to be in the US$2,100-2,200 range during 2010-11, Alcoa should be able to secure an average premium of 5-10% over costs, making its Italian operations commercially viable, provided markets remain sufficiently tight. However, these developments all depend on the effects of austerity measures on aluminium-consuming industries.
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