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Sweden Metals Report Q2 2011
Business Monitor International, April 2011, Pages: 47
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.
Sweden recorded the most impressive metals output growth in the EU in 2010 and a full recovery to precrisis production levels is expected in 2011, although the kroner’s appreciation against the euro poses the greatest downside risk over coming months.
The World Steel Association reported that in 2010, Swedish crude steel output grew 72.7% year-on-year (y-o-y) to 4.85mn tonnes, in line with BMI forecasts. However, output was still 15% below pre-recession norms. H210 output was 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-oy to 4.45mn tonnes, according to BMI estimates. We forecast a further 10.4% growth in crude steel output in 2011 to 5.35mn tonnes, while hot-rolled output should rise 17.6% to 5.23mn tonnes, which would mark a full recovery to pre-crisis levels of production. At the same time, primary aluminium production saw a brisk return to normal rates. After halving output in 2009 to 40,250 tonnes, BMI estimates that Sweden’s only primary aluminium smelter, Kubal, returned to 2008 rates of output in 2010, at close to 82,000 tonnes and should reach full capacity of around 100,000tpa in 2011.
Metals production has been spurred on by a revival in export-oriented Swedish manufacturing. This could be jeopardised by the appreciation of the Swedish kroner against the euro at a time of rising raw material prices. Despite having already appreciated by more than 23% against the euro since mid-2009, we believe the Swedish kroner has further to gain through 2011. Any appreciation of the kroner would impact negatively on the prospects of a sustained recovery in the metals industry. Deleveraging and weak consumption remain key drags on demand in parts of the eurozone, which could depress exports in the event of a double-dip recession. In this event, the recovery process would be prolonged, resulting in years of below-trend growth. However, the chances of a double-dip recession appear to be waning.
BMI expects domestic consumption to return to near pre-recession levels by 2012-13, 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 51.6% to 4.10mn tonnes and aluminium consumption rose 52.8% to almost 200,000 tonnes. While we believe 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 from 2012. Inventories have been the largest contributor to Swedish steel output growth and is expected to continue into H111, but base effects will erode by H211 and finished steel consumption should grow by a lower 20.7% to just under 5mn tonnes in 2011.
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