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Spain Metals Report Q4 2010
Business Monitor International, Oct 2010, Pages: 49
Business Monitor International's 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 recovery of the Spanish steel industry is being held back by the woes of the domestic construction and automotive industries as well as lacklustre export growth, according to BMI’s latest Spain Metals Report.
In the first seven months of 2010, Spanish crude steel production grew 30.4% y-o-y to 10mn tonnes. However, in line with global and European trends, monthly output peaked in May, rising to 1.65mn tonnes, the highest level since September 2008, when the global economic crisis struck. By July, as the sovereigns debt crisis began to play out, output was down to 1.1mn tonnes, similar to the low levels seen in 2009, and around two-thirds of total capacity. The key elements vital for private consumption to grow - comprising of higher incomes, lower taxes, greater wealth and available consumer credit - will all be lacking in Spain over the medium term, which will thrust Spanish metals industries into increased export dependency. The country remains burdened with low levels of consumer confidence, contraction of credit and rising inflation, which are all combing to dampen domestic demand.
We do not see a rapid return to pre-recession levels of output. Indeed, by 2014 crude steel output will still be 1mn tonnes fewer than in 2008, at 17.69mn tonnes, as Spanish producers struggle in a highly competitive external market and a lengthy downturn in the domestic market. Hot rolled output will face a similar overall decline, with 2014 output 5% below 2008 levels at 17.08mn 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.
There are a number of downside risks facing the steel industry. Spain's construction industry has been in recession since 2008, a trend that shows no signs of reversal. This has deeply hit the market in long steel products. In Q210, producers of long products faced empty order books, with buyers holding back purchases to wait for lower prices as Greece pushed down price offers in southern Europe. In August 2010, the Spanish government decided to reduce infrastructure spending cuts and reinstate some funds. It is our view that these cuts could not have come at a worse time for the decimated sector, especially given the high unemployment levels that have resulted. The news does little to alter our outlook for Spain's major construction companies, which have already become substantially distanced from the domestic market. Consequently, we see no reason to alter out outlook for Spain's construction steel market, which will remain in recession over the short term.
Meanwhile, the sovereigns debt crisis, coupled with ongoing economic woes, continue to undermine the car industry, another major consumer of steel. Domestic demand for vehicles will fail to return to precrisis levels over the forecast period, which will force the Spanish automotive industry to depend even more heavily on exports. On the back of our estimates of an overall 6% y-o-y fall in Europe auto demand this year, BMI has limited Spain's 2010 production forecast to just over 2mn units, down 4% y-o-y and does not see it returning to pre-crisis levels over the medium-term. As such, flat steel and aluminium semi-finished and finished production in Spain will be increasingly focused on export markets, although competition will be fierce if Chinese overcapacity continues to drag down international prices.
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