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Spain Metals Report Q1 2011
Business Monitor International, Jan 2011, Pages: 47
The 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.
Following a dismal 2010, the Spanish steel industry goes into 2011 with a gloomy outlook. The domestic market is set to remain in the doldrums and export markets will perform little better, according to this latest Spain Metals Report from BMI.
In 2010, Spanish crude steel production grew 13.7% year-on-year (y-o-y) to 15.26mn 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 sovereign debt crisis began to play out, output was down to under 1.0mn tonnes, similar to the low levels seen in 2009, and around two-thirds of total capacity. Output in H210 failed to match H209 and the industry contracted once again, with little hope of a rapid rebound in 2011. The key elements vital for private consumption to grow – including higher incomes, lower taxes, greater wealth and available consumer credit – will all be lacking in Spain over the medium term, and this 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, all of which are combining to dampen domestic demand.
Fiscal austerity measures in much of the eurozone will be the biggest risk factor to the Spanish steel industry over 2011. Growth in output was spurred by restocking, bolstered by the end of idling at Spanish plants. The economy is likely to grow by just 0.9% in 2011, following contractions of 3.6% and 0.6% in 2009 and 2010. Spain remains burdened with low levels of consumer confidence, contracting credit and rising inflation, which are dampening domestic demand. Damage is likely to come from a proposed two percentage point hike in the VAT rate, to 18%, from H210, further affecting demand and holding back a broad range of metals end products. The housing market is likely to remain depressed, restricting long steel demand for a further year. We envisage very little pickup in the volume or value of mortgages as long as a massive overhang exists in the property market.
The country’s economy is rebalancing, moving away from domestic demand and toward external demand as a driver of growth. However, the path to a full rebalancing is unclear, and even under fairly benign conditions, this could be a prolonged and painful process. Consequently, we do not see a rapid return to pre-recession levels of output. Indeed, by 2015 crude steel output will still be 1mn tonnes below 2008 levels, at 17.86mn tonnes, as Spanish producers struggle in a highly competitive external market alongside the prospect of a lengthy domestic downturn. Hot rolled output will face a similar overall decline, with 2015 output 4% below 2008 levels at 17.42mn tonnes, prompting producers to consider the possibility of taking capacity offline permanently. Construction materials such as rebar will be particularly affected, with production more than 7% below pre-recession levels, as the industry adjusts from years of residential housing boom.
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