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MBR's Outlook on Steel & Raw MaterialsMarket Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 1
Robert Cartman Senior Metals Analyst
10-11 September 2013
Addressing European overcapacity
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 2
Disclaimer:
Prices and other information contained in this presentation have been obtained by us from various sources believed to be reliable. This
information has not been independently verified by us. Those prices and price indices that are evaluated or calculated by us represent an
approximate evaluation of current levels based upon dealings (if any) that may have been disclosed prior to publication to us. Such prices are
collated through regular contact with producers, traders, dealers, brokers and purchasers although not all market segments may be contacted
prior to the evaluation, calculation, or publication of any specific price or index. Actual transaction prices will reflect quantities, grades and
qualities, credit terms, and many other parameters. The prices are in no sense comparable to the quoted prices of commodities in which a
formal futures market exists.
Evaluations or calculations of prices and price indices by us are based upon certain market assumptions and evaluation methodologies, and
may not conform to prices or information available from third parties. There may be errors or defects in such assumptions or methodologies
that cause resultant evaluations to be inappropriate for use. Your use or reliance on any prices or other information published by us is at your
sole risk. Neither we nor any of our providers of information make any representations or warranties, express or implied as to the accuracy,
completeness or reliability of any advice, opinion, statement or other information forming any part of the published information or its fitness or
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We are not an investment advisor, a financial advisor or a securities broker. The information published has been prepared solely for
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not intended to be relied upon by users in making (or refraining from making) any specific investment or other decisions. Your investment
actions should be solely based upon your own decisions and research and appropriate independent advice should be obtained from a suitably
qualified independent advisor before making any such decision.
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 3
Europe’s overcapacity problem – how bad?
The effects of overcapacity
Conclusions
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 4
Europe’s overcapacity problem – how bad?
The effects of overcapacity
Conclusions
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 5
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
ArcelorMittal ThyssenKrupp Riva Tata Steel
voestalpine Marcegaglia Salzgitter Arvedi
Ruukki US Steel Other
EU28 galvanized steel capacity
above 38Mt
combined control ~50% of total EU28 capacity
• Other major producers include Riva (Italy) and Tata Steel
(Netherlands and UK)
• Few expansions through until 2008, recent years have
seen some capacity shut e.g. Kremikovtzi
• Industry experienced major growth during 1990s
Source: Company reports, MBR
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 6
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Capacity Production Capacity utilization (RHS)
EU28 galvanized steel capacity vs. production
Mt
• Capacity utilization since 2008 has fallen below 80%
• As low as 60% in 2009 before recovering in 2010 and
2011 but fell again last year to 70%
• Production likely to fall again this year but capacity also
falling further (discussed later)
situation unsustainable for some mills
• What effects has this overcapacity had on Europe’s
galvanized steel producers?
• Will the market improve back to pre-crisis levels or are
capacity cuts needed?
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 7
Europe’s overcapacity problem – how bad?
The effects of overcapacity
Conclusions
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 8
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Average EU HDG price Capacity utilization (RHS)
EU28 HDG prices vs. capacity utilization
€/tonne
• Since 2008, lower utilization rates have made it difficult
for producers to raise prices significantly or for a sustained
period
now much weaker than it was through until 2008
• Price increases now very fragile, tend to only last 2-3
months
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 9
-150
-100
-50
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USSK profit after tax
TKS Steel Europe EBIT
overcapacity is evident
higher prices helped producers to perform better financially
• Since 2008, earnings down, losses in some cases
(associated with wider writedowns) and European
producers have been suffering for past 4-5 years
• How much longer can Europe’s producers continue
like this?
back to pre-crisis levels?
• Will Europe’s producers continue to wait or look for other
solutions?
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 10
Europe’s overcapacity problem – how bad?
The effects of overcapacity
Conclusions
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 11
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galvanized steel consumption
• 2013 vehicle output forecast to be some 20% below 2007
levels
regard to galvanized steel consumption
• Per-vehicle use of galvanized steel has little further
headroom to grow compared to past, already in
widespread use
• Increased focused on light-weighting, due to
environmental restrictions,/fuel costs, may see per-
vehicle use of galvanized steel fall or see it replaced by
other materials e.g. aluminium
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 12
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(2010 = 100)
No of new buildings approved Spain
New construction orders value, 2005p, sa UK
Selected construction indicators
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 13
ArcelorMittal planning cuts of ~700kt across 4 lines at
their Liège works, Belgium
conditions
ThyssenKrupp to divest/close 4 lines too in Germany
and Spain, amounting to ~1.4Mt
Galmed line in Spain (~400kt) already closed
Neuwied, Dortmund sites likely to be closed over coming
months
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 14
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2012
5-6% of total EU galvanized steel capacity
• ArcelorMittal capacity to fall to ~12.8Mt
• ThyssenKrupp capacity to fall to ~4.2Mt
• Total EU capacity will fall to around 36Mt, a similar level
to that of 2004/05
• Will this be sufficient or are further cutbacks likely to be
necessary?
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 15
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Med. term
Long term
EU28 galvanized steel capacity vs. production,
including forecasts Mt
• Should see utilization rise back toward sustainable and
profitable levels in the next few years and over the long
term
expansions
numbers slightly
existing levels (about 8-10% in 2012) and that European
producers remain competitive
Source: Company reports, MBR
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 16
Europe’s overcapacity problem – how bad?
The effects of overcapacity
Conclusions
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 17
• EU28 galvanized steel capacity has steadily built up over past two decades to
some 38Mt
• Utilization levels since 2008 have barely hit 70% and have fallen back in 2012 and
expected to again in 2013
• Last four years have seen prices slide and, with that, profitability
• Producers have already tried to wait it out, hoping for demand levels to return to
pre-2008 levels
• Automotive and construction sectors either down sharply or showing scant signs of growth
• Other dynamics, such as vehicle light-weighting, also acting against demand growth for galvanized steels
• Capacity cutbacks hence needed and they are now arriving, largely via
ArcelorMittal and ThyssenKrupp – the EU28’s two major galvanized steel producers
• Plans announced appear measured and should help the industry move to stronger ground over the next few years
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 18
Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
©2013 Metal Bulletin Research www.metalbulletinresearch.com 19
Contact details for further information:
Metal Bulletin Research
+44 (0)20 7779 7999