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Spain Metals Report Q2 2011
Business Monitor International, April 2011, Pages: 43
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.
While the Spanish steel industry performed slightly better than expected in 2010, output is still well down on pre-crisis levels and will struggle to climb back to normality, with a poor domestic environment and sluggish export growth.
In 2010, Spanish crude steel production grew 21.5% year-on-year (y-o-y) to 16.30mn tonnes, which was better than BMI’s estimates. H2 output was 16.6% down on H1, with output down partly due to the effects of the sovereign debt crisis. Much of the growth in 2010 was related to inventory rebuilding with output still down 14% over pre-crisis levels. BMI estimates that hot-rolled output was up 17.5% to 15.08mn tonnes - nearly 21% down on pre-crisis levels. Output was depressed by poor demand for long steel products amid the continuing slump in construction.
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 by low levels of consumer confidence, contracting credit and rising inflation, all of which are combining to dampen domestic demand. Firms have failed to see a significant rebound in industrial activity, with industrial production growth - a bellwether for the metals industry - proving flat in recent months. With industrial production remaining well below 2007 levels, and with low capacity utilisation rates, overall demand for metal products will be capped for the foreseeable future.
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. We have also lowered our 2011 growth forecast to 0.7%, from 0.9% previously, on account of the considerable fiscal consolidation scheduled for this year. Ultimately, we foresee limited scope for growth within any component of GDP by expenditure this year apart from net exports. Over the longer run we believe economic growth in Spain will prove moribund.
We do not see a rapid return to pre-recession levels of output. Indeed, by 2015 crude steel output will still be nearly 1mn tonnes lower than 2008, at 18.17mn tonnes, as Spanish producers look set to struggle in a highly competitive external market alongside a lengthy downturn in the domestic market. Hot rolled output will face a similar overall decline, with 2015 output 3.4% below 2008 levels at 17.52mn tonnes, prompting producers to consider the possibility of taking capacity offline permanently. Construction materials such as rebar will be affected in particular, with production more than 13% below pre-recession levels as the industry adjusts from years of residential housing boom.
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