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Sweden Metals Report Q4 2011
Business Monitor International, Oct 2011, Pages: 50
Business Monitor International's 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.
The Swedish steel industry has capitalised on its niche markets to stage a strong come-back, but rising costs and falling product prices will squeeze margins according to this latest Sweden Metals Report from BMI.
In the first seven months of 2011, Swedish crude steel output grew 8.1% year-on-year (y-o-y) to 3.05mn tonnes. This growth consolidates the recovery that began in 2010, when output rose 72.7% to 4.84mn tonnes. Monthly output has finally returned to pre-recession norms, with the Swedish steel industry making the most of its high-value production and a product mix that is favourable to the trends within the European steel market.
BMI believes that 9.8% growth in exports to 4mn tonnes in 2011 will lead to a 15% rise in crude steel production to 5.54mn tonnes – an upward revision from the 5.35mn tonnes forecast in the previous quarter – and a 17.6% rise in hot rolled output to 5.23mn tonnes. This 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 100,000 tonnes per annum (tpa) in 2011.
Metals production has been spurred on by a revival in export-oriented Swedish manufacturing. Swedish specialty steel maker Sandvik said demand in most markets was still strong in Q211, easing concerns about the impact of global economic uncertainties, but expected some effect from weaker metal prices in H211 as prices dropped.
Sandvik has been buoyed by a rapid recovery in demand, reversing massive losses sustained during the financial crisis. It says demand has been high in all market areas for tooling and also mining and construction, and varied for materials technology. SSAB also reported a strong performance in H111, but warned that a 20% hike in iron ore contract prices would affect margins, particularly given expected product price reductions.
Growth could be put in jeopardy 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, BMI believes the Swedish kroner can make further gains through 2011.
BMI's core forecasts call for gains back toward its historic high of SEK8.00/EUR in 2011. Any appreciation of the kroner would negatively affect 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.
At the same time, real GDP growth in Sweden is expecteed to slow steadily to 4.8% and 3.5% in 2011 and 2012 respectively, after peaking at a multi-year high of 5.7% in 2010. A wind-down of inventory restocking, tightening government spending and base effects following the post-recession capital investment boom will all contribute to a deceleration in the Swedish metals industry.
BMI stresses though, that Sweden will remain one of the fastest growing economies in Western Europe through the long term, with a sustainable growth model and limited macroeconomic risks.
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