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European Steel Market Course and Development PROMOSERVICES SAS di Giannini & C.

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Presentation on theme: "European Steel Market Course and Development PROMOSERVICES SAS di Giannini & C."— Presentation transcript:

1 European Steel Market Course and Development PROMOSERVICES SAS di Giannini & C.

2 EU economic trend PROMOSERVICES SAS di Giannini & C.

3 - sharp commodity price increases; - natural disasters in Asia; - uncertainties about the resolution of the sovereign debt crisis in the euro area. Fragile european recovery since 2009 Because of negative global elements: Source: European Commission, Interim Forecast, February 2012 PROMOSERVICES SAS di Giannini & C.

4 PROMOSERVICES SAS di Giannini & C. Source: Thomson Datastream, Ernst & Young analysis Commodity price increases: mining and minerals (Jan 09 – Jul 11)

5 Sovereign debt crisis in the euro area: spread between German and “PIIGS” bonds (1990 – 2011) Source: Pictet PROMOSERVICES SAS di Giannini & C.

6 Signs of stabilisation since Mid-november PROMOSERVICES SAS di Giannini & C. - Greece's bailout deal; - successful sovereign-bond auctions; - new liquidity measures introduced by the ECB; Reasons : Source: European Commission, Interim Forecast, February 2012

7 Adverse feedback loops between vulnerable sovereign debtors and weak banking systems Tightening credit conditions for the private non-financial sector PROMOSERVICES SAS di Giannini & C. EU sovereign debt crisis continues to be the main source of instability in the global financial system

8 PROMOSERVICES SAS di Giannini & C. Italy and Portugal 5Y spread To Germany (Aug 2011 – Jan 2012) Source: www.soberlook.com

9 PROMOSERVICES SAS di Giannini & C. - EU-27 - Euro area 0,0 % - 0,3 % Source: European Commission, Interim Forecast, February 2012 technical recession 2012 GDP forecast for the EU

10 PROMOSERVICES SAS di Giannini & C. Uncertainty keeps risks at high levels Source: European Commission, Interim Forecast, February 2012

11 PROMOSERVICES SAS di Giannini & C. EU steel outlook

12 PROMOSERVICES SAS di Giannini & C. Source: Eurofer Market Report, January 2012

13 PROMOSERVICES SAS di Giannini & C. Source: Eurofer Market Report, January 2012

14 PROMOSERVICES SAS di Giannini & C. Steel Apparent consumption has recovered in EU more than +7% in 2011 compared to 2010. This level is, however, 20% lower than 2007 level. Expectation, according to Eurofer for 2012 is a -2% decrease vs 2011 on the apparent consumption while the real consumption decrease should be -1% (-0,6%). These yearly trends should be the results of a strong decrease in first quarter and a moderate but still negative trend in the second quarter followed by a third a fourth quarter recovery. Our comment is that the second quarter 2012 seems to be more difficult than the first one. We forecast an apparent consumption decrease in the first two quarters between -8% and -10% compared to the same period of last year. Second part of 2012 is difficult to forecast: stocks are already stable at low level. We look forward to get a recovery but all is linked to the demand which is still weak. Fundamentals are not good.

15 PROMOSERVICES SAS di Giannini & C. Eurofer forecasts a 11% decrease of import from third countries. This is due to low demand and euro weakness. We estimated that import to EU from third countries will face also a strong competition in prices, in particular, from south European producers and in some products as galvanized coils. Some space could be found on OC following the dumping issue against China. Source: Eurofer Market Report, January 2012

16 PROMOSERVICES SAS di Giannini & C. EU Steel End Users Sectors All end users will show a negative trends in first H1 excluding Mechanical Engineering sector. Global trend 2012 should be slightly positive (0,4%). However a climate of uncertainty still exists and the duration of euro zone sovereign debt situation will impact at least the first part of 2012. The two more important sectors are Automotive (16%) and Construction ( 27%). Source: Eurofer Market Report, January 2012

17 PROMOSERVICES SAS di Giannini & C. Construction is projected to recover along 2012 after a bad starting on first quarter. So there is an Eurofer projection that the 2012 will close with 1-1,5% increase which is shared also by Eurometal. We think that first H1 of 2012 will be not so good, we estimated a reduction of minimum 5% compared to the same period of 2011. Private investments is not supported by the economic situation in particularly in Italy and Spain. The cut spending policy decided by these countries will not help the construction business. North and South Europe had two different speeds but also North is now affected. Source: Eurofer Market Report, January 2012

18 PROMOSERVICES SAS di Giannini & C. Automotive will show a 0,8% increase on 2012 compared to 2011 according both sources. The EU passengers cars registration was going down in 2011 and the total sales declined 1,7%. Commercial vehicles, on the contrary, showed a positive trends. Also export gave its contribution to increase. We think that the first part of 2012 will be affected by economic situation and the oil cost increase in certain countries like Italy where the cost of petrol is almost 2 €/liter. So we can estimated a sensitive reduction on first half of about 8%. Source: Eurofer Market Report, January 2012

19 PROMOSERVICES SAS di Giannini & C. The recovery in the second part is expected by economists and steel experts. The weakness of euro could give a chance to boost some exports but we should remain rather conservative also in the second part of the year because of the effect of the austerity reform taken in Europe unless a general positive change in the world trend. This situation appears to us as a medium term situation ra ther than a “first half” situation. Remarks

20 PROMOSERVICES SAS di Giannini & C. 2011/10 Apparent Consuption vs Steel production Source: Eurometal outlook on economies and steel market, February 2012 The updating of data shows a world steel production increase in 2011 of 6,8% vs 2010 with EU27 contribution of 2,8%. These are however good results which are in line with the world consumption but it will be difficult for EU27 to repeat the same increase in 2012. We imagine a stall situation.

21 PROMOSERVICES SAS di Giannini & C. EU steel Distribution market

22 PROMOSERVICES SAS di Giannini & C. EU Market Sales Structure Mill deliveries 49 MT 39% Market Supply 127 MT Stockholding Deliveries (long and flat) 49 MT 39% Flat Steel Service Centers (SSC) 29 MT 22% Steel distribution 78 MT 61% Source: Eurometal

23 PROMOSERVICES SAS di Giannini & C. Source: Eurometal EU Total distribution (Stockholders, SSC) accounts 2/3 of the market % distribution Distribution vs Total market

24 PROMOSERVICES SAS di Giannini & C. The Distribution network represents a the most important sales channel in Europe. They accounts for 50 to 70 % of the market and they play a key role also in the game between the apparent and real demand being very sensitive to price changes and patterns. In the recent past their attitude is quite conservative and the stock are well controlled and kept in line with the needs leaving poor space to speculation. This is due to 3 reasons : - the economy scenario is not clear; - the real consumption is not positive; - there is a serious difficulties of the banks system towards financing the companies which now have to find themselves the money to finance the stock.

25 PROMOSERVICES SAS di Giannini & C. Distribution is mainly represented in France and Italy by Flat SSC, Stockolders are mainly in UK, Spain, Germany and Benelux where account for more than 50% Stockholders and SSC Source: Eurometal CRU

26 PROMOSERVICES SAS di Giannini & C. The “distribution” market is shared between Stockholders and SSCS. In Italy and France sssc represents more than 50% of the market while in Spain, Uk and Germany/Benelux stockholding is the main activity. This structures are countries by countries managed differently. There are two main main models: the independent ssc and stockholder and the mill controlled distributors (mainly sscs). Within the “mill controlled” category there are two different: independent companies controlled by the mills and activities integrated in the mills. The role and the structure for the “distribution system” plays a fundamental role in Europe not only for stock but for the pricing policy, sales management and import penetration. So we will take galva market in Italy as an example, being Italy the European market most open to import.

27 PROMOSERVICES SAS di Giannini & C. Distribution market: Italian case

28 PROMOSERVICES SAS di Giannini & C. Italian market supply (2010) Rolled 25.350 KT 88% Flat 14.450 KT 57% Italian Market Supply 28.700 KT Semi-finished 3.350 KT 12% Long 10.900 KT 43% Source: Federacciai

29 PROMOSERVICES SAS di Giannini & C. SSC subdivision by area: flat products Source: Federacciai Palermo Cagliari Aosta Milano Bologna Trento Verona Trieste Ancona Napoli Catanzaro Venezia Perugia ROMA L’Aquila Campobasso Potenza VB VA CO BI NO VC AL CN IM SV Genova SP SO LC BG BS MN CR PC LO PV BZ BL TV PD VI RO PR RE MO FE UD PN GO RA RN FC MC AP MS PI LI LU PT GR PO SI Firenze AR TR VT RI LT FR TE PE IS FG CE BN AV SA CS KR VV RC ME CT AG CL EN TP SS NU OR Torino 1 Bari North West 52% North East 34% South 7% Middle 7%

30 PROMOSERVICES SAS di Giannini & C. Italy – Galva Market DOMESTIC PRODUCERS (RIVA, MARCEGAGLIA, ARVEDI, AM PIOMBINO) 1750 KT DISTRIBUTION 1800 KT 63% DIRECT CUSTOMERS 1000 KT 37% IMPORT EU 845KT IMPORT Extra EU 275KT 1120 KT 2870 KT

31 PROMOSERVICES SAS di Giannini & C. Italy – Galva processing structure AMDS CLN GABRIELLI VOEST 40% AM 100% MODENESE 35 % BAOSTEEL AM 35% INDEPENDENT SSC RIVA MARCEGAGLIA Distribution Market 1800 KT 1000 KT 55% 450 KT 25% 350 KT 20% MILLS DIRECT/PARTICIPATED SALE 45% PROCESSED STEEL MILLS DIRECT SALE MILL INTEGRATED / PARTICIPATED SSC DISTRIBUTION NETWORK

32 PROMOSERVICES SAS di Giannini & C. Conclusion China -13% Japan -10% South Korea -10% Germany -8,5% France -11% Source: World Steel Association World Crude Steel Production on January 2012 -7,8 % Steel Capacity Utilization Ratio expected in January 71,3 % of which but also Turkey +14,4% US +5,7% Italy +4,6%

33 PROMOSERVICES SAS di Giannini & C. - Steel mill cannot be relocated easily as i.e. Home Appliance producers. - Steel producers do not create high Ebitda margins. - Steel producers suffer regional and regional overcapacity. - Steel profits are compressed between Upstream (raw material + energy) and Downstream (distribution + global clients).

34 PROMOSERVICES SAS di Giannini & C. - innovative products; Current solutions are: - cost reductions; - site optimization; - flexibility.

35 PROMOSERVICES SAS di Giannini & C. - expansion/consolidation with M&A in different countries; - vertical integration, Upstream and Downstream (mines and distribution); But global solutions should be further implemented: - stimulating and reinforcing the steel associations.


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