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France Metals Report Q4 2010
Business Monitor International, Oct 2010, Pages: 48
The France Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on France's metals industry.
Over the medium term, the French metals sector may take more time to recover than previously expected, if abrasive economic developments in recent months worsen, according to this latest France Metals Report from BMI.
A central government spending freeze between 2011 and 2014, announced in May 2010 by Prime Minister François Fillon, is not expected to hit metals consumption but, with such economic volatility, tightening pressure may impact stimulus spending. However, upside risks to our forecasts also exist: if the French economy strengthens at a more rapid rate than currently anticipated by our macroeconomic team, demand should help to ensure positive sector growth next year, in real terms.
In the first seven months of 2010, French crude steel output grew 38.8% y-o-y to 9.67mn tonnes. Although France’s steel output declined month-on-month (m-o-m) in June and July, in line with global and European trends, output was still well above 2009 levels. Metals performed better than other industrial and manufacturing sectors in Q210. The turnover of the French manufacturing industry in Q210 grew 1.1% quarter-on-quarter (q-o-q), and 5.3% year-on-year (y-o-y), but lagged behind pre-crisis levels. The metal and metal product manufacturing sector grew 3.8% q-o-q while turnover in automobile production declined by 5.4%. The machinery and equipment manufacturing saw an increase of 0.6%, while turnover in the country's construction industry fell by 0.7%.
While domestic metals production looks to be on the mend, growth 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, with output at around 80% of pre-crisis levels, suggests that domestic firms have not secured sufficient new orders to significantly ramp up production. Moreover, in our view, the recovery posted by France during 2010 is unlikely to be carried through into 2011. Stalling consumer confidence and impending fiscal cuts will start to affect household spending on consumer goods, cars and housing, which are mainstays of metals producers. Tighter fiscal policy, and ongoing spare capacity will also limit investment growth in metals processing.
Q210 is likely to mark the peak of the recovery, with leading indicator already suggesting a slowdown in private consumption, the key driver of the economy. At the same time, export growth will be limited by similar trends elsewhere in the eurozone. We hold to our crude steel output growth forecast of 17.5% to 15.08mn tonnes, and hot-rolled output growth of 15.6% y-o-y to 14.49mn tonnes. Double-digit growth will only partly offset the massive decline seen in 2009, when French crude steel output fell 28.2% y-o-y to 12.84mn tonnes.
BMI does not envisage a return to pre-recession levels until 2013 or 2014, although there is a possibility of some plant and furnace closures that could lead to lower output levels. By 2014, crude steel output should be around 18.11mn tonnes, which is around 1.1% above 2008 levels. Aluminium should fare better, helped in part by its use in lighter and more fuel-efficient vehicles. By 2014, aluminium production should have recovered to 2008 levels, provided there is no closure of capacity.
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