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Netherlands Metals Report Q4 2010
Business Monitor International, Oct 2010, Pages: 46
Business Monitor International's Netherlands Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the Netherlands' metals industry.
The Dutch steel industry is set to experience a temporary decline in output in Q410, which will continue into 2011, as the eurozone goes into a period of economic slowdown and domestic demand is slow to recover. However, the sector still has plenty of long-term potential due it its competitiveness and high level of integration and diversification, according to BMI’s latest Netherlands Metals Report.
In the first seven months of 2010, the Netherlands’ crude steel output grew 51.7% y-o-y to 3.67mn tonnes, with production peaking in May at 604,000 tonnes – the highest level since September 2008 – before falling in June and July, as exports slackened. The industry was still performing at just 80% of prerecession levels during this time. The performance of the Dutch steel industry has been held back by planned repair works at blast furnace No. 7 at Corus’s operations in IJmuiden.
We believe the Dutch steel industry is best placed to take advantage of inventory restocking and a modest uplift in overall demand. The industry will face a likely slowdown in H210, caused by EU-wide fiscal austerity measures and the expected slump in car making, following the withdrawal of purchase incentives and the slow revival in construction. Nevertheless, we retain our crude output forecast of 6.1mn tonnes in 2010 (up 17.6% y-o-y), and hot-rolled output of just over 4.79mn tonnes (up 6.1%).
The onset of fiscal austerity in eurozone economies should constrain consumer demand and hamper Dutch export growth. Although sovereign risks remain prevalent, we do not foresee a renewed bout of euro-depreciation to match that seen in May and June. Therefore, the increase in competitiveness enjoyed by steel exporters over this period is unlikely to be replicated in the near future.
Export growth will wane over the medium term and we see limited scope for domestic drivers to pick up the slack. However, we expect the recovery in household expenditure to remain weak over the coming months. Looking ahead, private consumption should be constrained by weak employment conditions. This is particularly the case given that fiscal austerity measures will start to take effect in the coming quarters. While the unemployment rate moderated to 5.5% in June, down from a high of 5.8% in March, we expect government cutbacks to keep the job market under pressure. Persistent joblessness should act as a drag on private consumption over the medium term and as a result, we forecast only modest growth in private consumption of 0.4% in 2010, before a more pronounced pick up to 1.7% in 2011, leaving the metals markets in the Netherlands in the doldrums over the short term.
What is more, we expect significant overcapacity to restrain investment over the medium term, with the broad trend remaining negative. Over 2010 as a whole, we estimate that gross fixed capital formation will grow by 0.7% y-o-y, and anticipate only a modest pickup to 1.8% in 2011, compared to an average growth rate of 4.0% over the period 2004-2008. This could have protracted implications for the structure of the Dutch aluminium and steel industries over the medium term, with a low level of capital investment in industry lowering demand for metal products. It also undermines expansion in downstream processing activities.
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