Austria Metals Report Q1 2013

BMI's latest Austria Metals Report assesses the prospects for growth in the steel industry over themedium-term following a decline in both consumption and output in 2012. It examines the risk andinvestment strategies of leading players in the industry. It also examines the impact of a decline in theeurozone, particularly the German market, on Austrian exports.

The performance of Austria's steel industry deteriorated in the first 10 months of 2012 when crude outputdeclined 3.8% y-o-y to 6.23mnt. Austrian steelmaking has suffered from the structural oversupply ofstandard grades, which has driven down prices on the EU market despite cutbacks in output. This has putdownward pressure on margins, although there is no immediate sign of any idling of capacity. Althoughvolume has contracted, Austria still outperformed the 4.6% contraction reported for the whole of the EU.

Austria's dominant steelmaker Voestalpine is also upbeat, expressing its confidence that business willpick up. While volume may not increase, sales could be boosted by a rise in product prices. Capacityconstraints will prevent any further significant growth in crude steel beyond pre-crisis levels over the longterm, although BMI expects investment in downstream sectors.

Over the last quarter BMI have revised the following forecasts/views:

In the aluminium market, trends will mirror steel consumption although the trend will bestronger due to the reliance on consumer goods and automotive sectors, with a 7% decline inconsumption to 320,000 tonnes in 2012, following growth of 15% to 344,000 tonnes in 2011. By2017, consumption rates should be exceeding 400,000 tonnes.

BMI has revised the domestic crude steel consumption growth estimate for 2012 from -5.0% to-2.4%. However, we anticipate that recovery will be slower in the years ahead and it will takeuntil 2016 before domestic consumption returns to pre-2008 levels.

Voestalpine is looking to diversify its markets away from the EU, although this will largelyinvolve investment outside Austria. Around a quarter of Voestalpine's sales are in emergingmarkets outside Europe and it is hoping to raise this share to up to 50% by 2022. This wouldinvolve increased investment in facilities outside Austria at the expense of its Austrianoperations.