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Germany Metals Report Q1 2011
Business Monitor International, Feb 2011, Pages: 50
The Germany Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Germany's metals industry.
German steel and aluminium producers enjoyed a sharp rebound in 2010, but growth rates are set to fall to low single figures in 2011 as the market cools and cost pressures erode margins, according to this latest Germany Metals Report from BMI.
In 2010, German crude steel output grew 35.1% year-on-year (y-o-y) to 44.13mn tonnes, with hot-rolled steel output up 31.9% to 39.02mn tonnes. Primary aluminium production grew 33.6% to 544,600 tonnes. BMI estimates that finished steel consumption grew 32.4% y-o-y to 35.90mn tonnes, while aluminium consumption rose 33.7% to 2.87mn tonnes. While the growth rate has been impressive, it is largely due to a low base of comparison, which will wear off in 2011. Additionally, economic activity will moderate.
Even with strong economic performance throughout 2010, output in H2 was 4% down on H1. With the eurozone economy facing a difficult period of fiscal austerity programmes, persisting fears of a renewed sovereign debt crisis in the bloc's periphery and a softening economic recovery in the US, BMI believes the outlook for a weaker 2011 will increasingly feed through to German metals producers. As such, BMI forecasts crude steel output growth of just 1.6% to 44.84mn tonnes, which is still at least 5% down on prerecession levels.
In 2010, exports of semi and finished steel products grew 28.4% to 25.8mn tonnes, while aluminium exports rose 24.1% to 1.48mn tonnes, according to BMI estimates. This rate will not be repeated over the following four years, and indeed will slow markedly in 2011 as the market adjusts to increased capacity and the effects of an expected double-dip slowdown from late 2010. That said, with its domestic end-users specialising in high value-added capital goods, the German metals industry will be in a good position to take advantage of healthy emerging markets convergence and demand growth there. Export markets such as Russia, China, Poland and Turkey are expected to increase in importance. Domestic consumption growth will remain moribund, hampered by a weak labour market, fiscal austerity and a high savings rate.
By end-2010, nearly all plants were back in operation and BMI believes that the industry as a whole is operating at a comfortable profit margin, with producers better able to pass on rising raw material costs to their customers. Despite booming factory order numbers hitting German manufacturers and exporters in H110 – a trend which appears to have spilled over into H210 judging by recent leading indicators – BMI notes that European demand is set to falter in 2011. Diversification into more vibrant emerging markets – in order to sufficiently offset the weak demand outlook we envision for the eurozone economy – will take years to accomplish. ThyssenKrupp reports that while its production was running at full capacity by end- 2010, the highest of all producers in Western Europe, it expects growth to slow in 2011 as customers finish restocking. Other downside risks include the rising price of raw materials and the threat of cost burdens imposed on steel and aluminium companies by EU plans for emissions trading from 2013.
Lacklustre growth in both construction and the automotive industry will ensure that aluminium and steel see low single-digit growth over the next five years, although having recovered strongly in 2010 German producers will have little to worry about in terms of output volumes. The key problem will be sustaining margins in the face of global over-supply pressure in some segments, particularly in construction materials, and feedstock cost pressures that could become problematic if producers are unable to pass on higher prices to customers. While iron ore prices have come off two-year highs touched in April, by end- 2010 they were still 70% higher than at the end of 2009 due to the recovery in the global economy and a switch in contract pricing to quarterly from annual, which benefited global miners.
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