Spain Metals Industry Update Quarter 3 2011

• Publication date: July 2011

The Spanish steel market is set for growth in 2011, but problems with competitiveness and a poorly performing domestic industry will prevent a return to pre-recession levels of output before 2015, according to this latest Spanish Metals Report from BMI. In the first four months of 2011, Spanish crude steel production grew just 1.3% year-on-year (y-o-y) to 5.96mn tonnes. Output grew in the context of above consensus growth of 0.3% quarter-on-q...

The Spanish steel market is set for growth in 2011, but problems with competitiveness and a poorly performing domestic industry will prevent a return to pre-recession levels of output before 2015, according to this latest Spanish Metals Report from BMI.
In the first four months of 2011, Spanish crude steel production grew just 1.3% year-on-year (y-o-y) to 5.96mn tonnes. Output grew in the context of above consensus growth of 0.3% quarter-on-quarter (q-o-q) in Q111. While growth was unimpressive, it was an improvement on the performance seen in H210 when output fell. For the whole of 2010, Spanish crude steel production grew 21.5% y-o-y to 16.30mn tonnes, which was better than BMI estimates. H2 output was 16.6% down on H1 with output down partly due to the effects of the sovereign debt crisis. Much of the growth in 2010 was related to inventory rebuilding, with output still down 14% over pre-crisis levels. BMI estimates that hot-rolled output was up 17.5% to 15.08mn tonnes – nearly 21% down on pre-crisis levels. Output was depressed by poor demand for long steel products amid the continuing slump in construction.
The positive performance in H111 coupled with Gross Domestic Product growth projection at 0.7% prompts us to revise upwards Spain’s crude and hot-rolled steel output growth rates from 4.7% and 4.4% respectively to 9.8% and 10.0%. However, we do not expect a rapid return to pre-recession rates of production due to fiscal austerity measures, rising interest rates, high unemployment and industrial spare capacity. Exports will continue to be the chief driver of growth within the steel market, but this will depend on the increasingly competitive German and French industries, which are undergoing something of a revival. The extent to which exports can lift Spanish steelmaking is also partly dependent on the economy's competitiveness.
Spain has lost considerable ground on other eurozone countries due to wage and price inflation, while productivity increases have proved limited. At the same time, Western European countries will be seeking to sustain their own economic recoveries through export-led growth, implying that there may not be enough demand within the eurozone to boost Spanish steel exports.
Industrial production has shown some signs of recovery over the past few months, primarily on the back of improved demand for exports. However, steel production remains well below 2007 levels and with low capacity utilisation rates, overall demand for new investments will be capped for the foreseeable future. This is particularly the case within the longs sector, which will suffer from overinvestment in real estate over the years leading up to the country's economic downturn. At the same time, depressed domestic demand will keep imports down.

Metal Manufacturing Industry in Spain

Executive Summary 5
Industry SWOT Analysis 6
Spain Political Environment and Risk Analysis . 6
Spain Economic Environment and Risk Analysis . 6
Spain Business Environment SWOT 7
World Market Overview 8
Steel Projection . 8
Steel to Average USD 580/tonne In 2011 8
BMI Steel Projection . 8
Steel Prices . 9
Cost Push On The Supply Side 9
Few Supply Constraints In Sight, For Now . 10
Commodities Projection 14
Commodity Strategy – Metals Update 14
Aluminium. 14
Copper 15
Gold 16
Lead 17
Nickel 18
Tin. 19
Zinc . 20
Regional Overview 21
Forecast Scenario . 26
Data : Spain’s Metals Market (‘000 tonnes unless stated), from 2008 to 2015 29

Macroeconomic Data . 30
Spain – Economic Activity 32

Competitive Landscape 33
Company Profiles 35
Sidenor 35
Alcoa . 36
Acerinox 37
Compañía Española de Laminación SA (CELSA) . 37
ArcelorMittal 37
World Assumptions, Q311. 38
Data : World Assumptions, from 2009 to 2015 38
Data : World And Regional Real Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) . 39
Data : Selected Exchange Rates, from 2010 to 2013 (average) 39
Developed States . 40
Data : Developed States’ Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) 41
Emerging Industries 42
Data : Emerging Industries’ Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) 43
Consensus Projections . 44
Data : Bloomberg Consensus Gross Domestic Product Growth Projections, from 2011 to 2012 (% change y-o-y) . 44
BMI Methodology 45
How We Generate Our Market Projections . 45
Cross Checks 45
Country Snapshot: Spain Demographic Data . 46

Section I : Population 46
Data : Demographic Indicators, 2005-2030 . 46
Data : Rural/Urban Breakdown, 2005-2030 47

Section II : Education And Healthcare . 47
Data : Education, from 2002 to 2005 . 47
Data : Vital Statistics, 2005-2030 . 47

Section III : Labour Industry And Spending Power . 48
Data : Employment Indicators, from 2001 to 2006 . 48
Data : Consumer Expenditure, from 2000 to 2012 (US$) . 48
Data : Average Annual Manufacturing Wages, from 2000 to 2012 49