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Sweden Metals Report Q1 2011
Business Monitor International, Jan 2011, Pages: 52
The Sweden Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Sweden's metals industry.
This latest Sweden Metals Report from BMI warns that the rapid growth in the Swedish steel industry that made it the EU’s strongest performer in 2010 will fall away in 2011 as inventory stocking is completed and domestic demand cools.
In 2010, Swedish crude steel output grew 72.5% year-on-year (y-o-y) to 4.84mn tonnes, although output was still 15% below pre-recession norms. Output was higher than the 52.2% growth anticipated by BMI, with H210 output far higher than expected, although still down 10% over H110 due to the anticipated slowdown in external demand from the eurozone. Hot rolled production also grew 62.2% y-o-y to 4.19mn tonnes. A robust domestic credit market offset much of the slackening in export recovery with Sweden among the top performing Western European economies this year, with growth far outstripping that in the eurozone. However, BMI expects crude and hot rolled output rates to plateau after 2011 as a result of saturated export markets and only fully return to pre-recession rates by 2014. Primary aluminium production should see a faster return to normal rates. After halving output in 2009 to 40,250 tonnes, BMI expects Sweden’s only primary aluminium smelter Kubal to return to 2008 rates of output in 2010, at close to 82,000 tonnes, before reaching full capacity of around 100,000 tonnes per annum (tpa) the following year.
However, we caution that protracted weakness in European demand will hold back export growth in the long run. As such, while steel exports grew by an estimated 35.5% to 2.92mn tonnes in 2010, after nearly halving in 2009, domestic consumption of finished steel products is rose by just under 47% to 5.1mn tonnes. BMI expects domestic consumption to return to near pre-recession levels by 2015, but output will be dragged down by lacklustre export performance. Poor performance in the automotive sector has depressed domestic industrial demand for flat products. In consumption terms, a collapse in domestic industrial output and consumer demand in 2009 led to a 50.6% drop in finished steel consumption to 2.70mn tonnes, while the aluminium market plummeted 48.1% to around 123,900 tonnes. This was partly corrected in 2010, when finished steel consumption grew 46.5% to 3.96mn tonnes and aluminium consumption rose 35.5% to 182,600 tonnes.
While we believe that strong domestic demand growth can continue over the next several quarters, our core view is that a slowdown in headline growth is inevitable. Our outlook is predicated on the winding down of the inventory effect and the stalling of household credit growth. Inventories have been the largest contributor to Swedish steel output growth and while this is expected to continue into H111, base effects will erode by H211 and annual crude output growth will be 3.2%, reaching just under 5mn tonnes. Credit growth is also set to diminish, leading to a drastic slowdown in domestic consumption. The Riksbank has begun to raise rates in an effort to reduce inflationary forces, which should stem housing growth and the construction activity that has supported long steel production. As such, we do not envisage a return to preSweden recession export levels over the medium term, a situation that will be felt across the country’s exportoriented industrial sector. Flat production will be badly hit by poor externalities, particularly if the domestic car industry does not return to pre-crisis production. Consumption levels will still be well below those typical of Sweden before the recession due to the continued performance of key consuming industries, namely the automotive and construction sectors, which will lag slightly behind other sectors in the recovery phase.
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