Market Outlook March 2008
Spring Awakening - how sustainable is the upswing?
2007 was not the best year for the global stainless steel industry. With the exception of China, all major suppliers suffered from severe production volume reductions. In total, SMR estimates that the stainless steel crude steel production was even below 28 million (~27.9 million t) in 2007. Compared with 2006, the global production declined 1.9% last year.
China, with its new (over)capacities coming on stream, grew by over 30%, whilst the production of other regions such as Europe and North America (but also traditional producers such as South Korea and Taiwan) declined in double digits. This massive production shift to China is one of the major reasons for the fear of Chinese suppliers in Europe leading to the AD investigations against China and other Asian producers.
Situation of European Mills: due to the de-stocking at distributors, particularly production at mills with a high austenitic share, (for example Outokumpu), performance declined in Q3, whilst suppliers with a high ferritic share performed somewhat better. The austenitic ratio fell to around 59% in 2007, basically caused by poor sales to distributors (which mainly stock austenitics) in the second half of 2007. Arcelor Mittal lost 130,000 t in HY2/07 compared with HY2/06, Outokumpu's shipments fell by 400,000 t to 1.4 million t (-22%). TK Stainless minus 200,000 t (FY 2006/07) and Acerinox Group produced 280,000 t less (melting production 2.3 million t after almost 2.6 million t in 2006). In early March Axcerinox announced that their long awaited investment decision to build a plant in Asia has been finally approved. They will build a 1 million t plant, together with long term partner Nisshin, in Johore, Malaysia for $ 1, 5 billion.
In the fourth quarter 2007, financial results of the big European mills performed relatively poor again: TKS and Acerinox suffered losses of €45 million (EBT TKS) and even €112 million (Acerinox profit after tax), whilst Outokumpu reached profits of €7 million (before tax) after a heavy loss in the previous quarter. Surprisingly, ArcelorMittal outperformed its European competitors with an operating income of €115 million.
However, the market improved substantially February 2008! After a slow beginning of the European market in January, the pace of the market recovery accelerated in February. European mills enjoy longer lead times (12 instead of 8 weeks). They were able to increase base prices in several steps since the beginning of the year. For April, the next price increase (approx. ~50 €/t) is expected by distributors.
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