German metals industries are set for a massive downturn in 2009 and recovery will be a slow process,further hampered by deterioration in the competitiveness of domestic production, according to BMI’slatest Germany Metals Report.
Government stimulus measures such as the car scrappage scheme were crucial to reviving the economy inH109 and are beginning to filter through into increased steel and aluminium output. According to theWorld Steel Association, in the first seven months of 2009, German crude steel output fell 41.4% yearon-year (y-o-y) to 16.53mn tonnes. Despite output being down 28.8% y-o-y in July, it was up 7.2%month-on-month (m-o-m) at 2.69mn tonnes, the highest monthly level since November 2008. The FederalStatistical Office (Destatis) reported that steel production rose to 2.9mn tonnes in August. Nevertheless,the overall macroeconomic picture remains weak in Germany, with real GDP now expected to contract by6.0% in 2009. In this context, BMI forecasts output falling by around 34% to 30mn tonnes, which is morepessimistic than the 31-33mn tonnes and 30% decline forecast by Wirtschaftsvereinigung Stahl(German Steel Federation, WV Stahl).
BMI’s automotive team is not optimistic about sustained growth in the German car industry beyond theartificially inflated domestic demand created by the government’s car scrappage scheme. Although weexpect some recovery in the commercial vehicle sales in 2010, the fall in the passenger car market will actas a drag on overall sales, taking end of year sales down 20% y-o-y and dragging output down by 5%.This will feed into the steel and aluminium markets, with the German flat products markets likely toremain depressed throughout H110. In the other main market for metal, construction, the Germangovernment’s EUR70bn stimulus plans for infrastructure projects are expected to have some positiveimpact on the country’s construction sector in 2010, giving encouragement to longs producers.
Aside from the current market downturn, the main risk factor facing German aluminium smelters and to alesser extent the steel industry - principally in electric arc furnaces - is the high price of electricity, whichmakes up more than 40% of the cost of primary aluminium production. Producers claim that this is agreater long-term threat than the recession and undermines German competitiveness. BMI believes that,as a result, German producers will be unable to take full advantage of the growth in domestic andEuropean consumption over the next five years.
BMI forecasts apparent crude steel demand falling 38.8% y-o-y to 29.6mn tonnes in 2009, with finishedsteel demand falling at a similar rate to 27.5mn tonnes. As such, crude steel output will fall 35% to justunder 30mn tonnes and hot-rolled production will decline 34.6% to 27.6mn tonnes. A modest rebound in2010 should see crude and finished steel consumption rise by around 5.7% to 31.3mn and 29.1mn tonnesrespectively, leading to 4.6% and 3.5% growth in crude and hot-rolled output. Meanwhile, in 2009 a41.7% decline in aluminium consumption to 2.03mn tonnes will lead to a 42.4% fall in production and42% drop in imports to 318,761 tonnes and 2.21mn tonnes, respectively. However, the recovery inaluminium will be stronger than seen in the steel sector as a result of increased demand for newapplications as a lightweight substitute for steel, particularly in the automotive industry. Consequently,2013 primary aluminium output will approach 550,000 tonnes, close to pre-recession levels, and exportsshould reach 1.62mn tonnes. However, apparent aluminium consumption will surge to 3.92mn tonnes,with most of the increase supplied by imports which will increase to 3.87mn tonnes.
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