Italy Metals Report Q4 2009

Countries covered: Italy

Italian metals industries failed to see any revival in production through much of 2009, despite signs ofstability and growth in key steel consuming sectors such as the automotive and construction industries.

BMI foresees the beginning of a slow recovery in 2010, but steel and aluminium production will fail toreturn to pre-recession levels over the next five years, according to our latest Italy Metals Report.

In the first seven months of 2009, Italy’s crude steel output fell 43.1% year-on-year (y-o-y) to 11.26mntonnes. Monthly output averaged around 1.61mn tonnes. In July, monthly crude output slipped to 1.52mntonnes (down 44.5% y-o-y), which, even allowing for seasonal effects, indicated that the Italian steelindustry was failing to show signs of any recovery and restocking had yet to kick in. Further down theproduction chain, steel product manufacturers have been radically cutting output amid plummetingorders. Flat product orders had almost dried up in H109 and longs were also struggling as the steelindustry experienced a stronger than expected fall in demand.

BMI forecasts crude steel output of 18.92mn tonnes in 2009, down 38% y-o-y. Output is expected toremain at an average of just over 1.5mn tonnes. Although a seasonal downturn is expected in August, themarket is already bouncing along the bottom of a trough and no significant further downturn is expectedin H209. The domestic metals market is being dragged down by a sharp recession. BMI forecasts Italy’seconomy to contract by 4.5% this year, followed by modest 0.2% growth in 2010. The still-weak globalequity and credit markets have also made it more difficult for firms to raise the necessary funds to invest.

The recovery for investment spending is going to be slow, with only a 2.0% expansion forecast by BMIfor 2010, before a jump to 3.6% in 2011.

By 2010, GDP growth should reach an underwhelming 0.2% before making a relatively strong recoveryof 2.0% in 2011, after which average growth will be 1.4%. These trends, which are expected to berepeated throughout Europe, will help revive Italian steelmaking, although BMI does not envisage outputlevels returning to pre-recession levels. It is likely that inefficient Italian industries will have cutproduction or closed completely during the recession, while prices will be kept down by rising supplyfrom more competitive Eastern European producers, particularly in Turkey and the CIS. Growth indomestic and external demand, albeit tentative, in 2010 should lead to a 7.1% growth in hot-rolled steelproducts output from a very low base, with crude steel rising 5.7% to 20mn tonnes. BMI expects theeffects of the recession to have a long-lasting impact on the Italian steel industry. By 2013, crude outputshould rise further to 27mn tonnes, which is still 11.5% down on 2008.Having fallen by an estimated 37%to 1.44mn tonnes in 2008, aluminium consumption is set to recover strongly in coming years as industryseeks to utilise this lightweight substitute for steel in automotive and consumer products manufacturing.

By 2013, aluminium consumption should near the 2.36mn tonne record set in 2007, leading to imports of1.82mn tonnes. However, domestic production will lose out to more competitive imports and remeltingand BMI does not foresee a return to pre-recession smelting rates over the next five years. By 2013,Italian primary aluminium output should be just under 170,900 tonnes, down 5.6% over the 179,900tonne mark in 2008. In fact, aluminium production was in decline well before the recession hit, downfrom around 194,000 tonnes in 2004-06.

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