Sweden Metals Report Q1 2013

BMI's Sweden Metals Report for Q113 examines the competitive advantages of the country's steel andaluminium sectors, but warns that dependence on the automotive industry as a major consumer couldprove to be a weakness amid the eurozone crisis. The report examines how producers are responding tovolatile market conditions and examines trends going forward. The report also analyses the growth andrisk management strategies being employed by the leading players in the steel and aluminium sectors, asthey seek to maximise the growth opportunities in niche markets, such as energy plants.

The Swedish steel industry's strong recovery from the 2008-09 crash is threatened by the eurozone crisisand there are growing concerns of a significant collapse in output. The export-oriented steel industry,which depends heavily on the market for special grades used in machine tools and the automotive sector,continued to witness a decline in 2012. This was largely the result of a corresponding worsening situationin the European automotive market where consumer sentiment was generally subdued due to fiscalretrenchment and other macroeconomic factors. A wind-down of inventory restocking, tighteninggovernment spending and base effects following the post-recession capital investment boom all putpressure on the Swedish metals industry. These issues will not go away in 2013 and will continue to putconsiderable downside risk on Swedish steelmaking. We stress though, that Sweden will remain one ofthe fastest growing economies in Western Europe through the long term, with a sustainable growth modeland limited macroeconomic risks.

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

In 2012, Swedish crude steel output declined 11.0% to 4.35mnt according to BMI estimates, oneof the worst performances in the EU and well below our forecast of 4.54mnt in the previousquarter. We retain our output forecast of around 6mnt by 2017.

With 60% of total production comprised of alloyed steel, including stainless, the sector willcontinue to be influenced by the trends in the automotive industry. Further growth will dependon SSAB restarting of one of its three blast furnaces in Sweden, which had been closed due toweak market conditions. One of two blast furnaces in Oxelsoeund was shut down in mid-2011for relining, which was completed by October.

Primary aluminium production has seen a brisk return to normal rates. However, there is adistinct possibility that potlines at Kubal will be taken offline if the automotive sector, one of itsmain consumers, continues to be affected by the downturn in consumer spending. BMI believesin 2012 output was in the region of 70,000-80,000 tonnes from the smelter.