Austria Metals Report Q4 2009

Austria Metals Report Q4 2009

The Austrian steel industry is witnessing a slow recovery from the economic downturn, but the sector is
plagued by other uncertainties as a result of continued volatility on European markets, according to
BMI’s Q409 Austria Metals Report.
In H109, Austrian crude steel output was down 37.6% year-on-year (y-o-y) to 2.46mn tonnes. However,
the industry is slowly recovering from a February low of 349,000 tonnes, reaching 525,000 tonnes in June
(down 17.2% y-o-y), amid signs that demand and prices are stabilising. As such, there is an air of
growing optimism surrounding the Austrian steel industry. Between 60-80% of Austrian aluminium and
steel production is exported, with the hard-hit automotive industry comprising around 25% of sales.
Consequently, producers are highly exposed to the economic downturn. While the Austrian economy had
held up well against the onslaught of the global credit crunch, we caution that as a result of the real
economic costs from the contraction in credit availability and forced deleveraging process, the domestic
economy will not be able to deflect a recession in 2009.
Despite reporting a Q1 FY2009/10 earnings before interest and taxes (EBIT) loss of EUR24mn (down
from a profit of EUR358mn in Q1 FY2008/09), Austrian steelmaker Voestalpine has stuck to its full-year
outlook that it will make a profit at an operating level and will break even on its net profit line. However,
Citigroup has been slightly less sanguine, predicting positive EBIT figures for the financial year to
March 2010, but a net loss of around EUR9mn. This is based on the assumption of a modest improvement
in markets in the US and Europe, particularly for automotive components and infrastructure spending.
The German automotive industry, a key market for Austrian steel, experienced strong but artificiallyinflated
domestic demand and may see a significant fall next year. The slump in German demand will
mean that carmakers could produce 5% fewer vehicles y-o-y, a decrease in numbers to 4.9mn units, in
2010, according to BMI forecasts. Also, Voestalpine’s long-term price contracts will mean it will suffer
for a longer period of time than its rivals and any stabilisation will have a time-lag because of plant
shutdowns. However, its raw material negotiating power should provide a buffer in a downturn.
End-user demand for flat products remains weak and the summer season will see a further deterioration.
However, buyers are coming back to the market, albeit only for relatively small quantities to replenish
their stocks, having run them down in H109. Although producers across Europe have lifted their price
offers, buyers are reluctant to accept the increases. With the US dollar weakening against the euro and
sterling, imported material is becoming more competitive while exports are less attractive outside the
eurozone.
BMI forecasts a slow and unsteady recovery in monthly volume in H209, but total output for the year will
be down by 28% to 5.46mn tonnes, the lowest annual total since 1996. The beginnings of an economic
recovery in the eurozone in 2010 offer some respite to the export sector and international credit
conditions, although the domestic economy will see zero growth in 2010. This will result in a sluggish
recovery in the domestic steel industry with production set to rally from Q210, with output reaching
6.12mn tonnes. BMI does not envisage a return to pre-recession levels over the foreseeable future due to
increased competition from the CIS and Turkey. By 2013, output should have recovered to 6.59mn
tonnes, which is still 13.2% down on 2008 levels. Our forecast is supported by VoestAlpine’s recent
statement that a return to 2007 production levels ‘is likely only over a period of several years.’ At the
same time, finished steel consumption will increase at a more rapid rate, returning to around 2007 levels
(4.75mn tonnes) by 2013, in turn fuelling a rise in imports which, having fallen 39% to 2.5mn tonnes in
2009, will return to the 3.8mn mark by 2013.

Executive Summary 5
SWOT Analysis........7
Austria Political SWOT............... 7
Austria Economic SWOT ............ 7
Global Metals Market Overview ................8
Table: World’s Top 10 Steel Producing Countries, 2007 And 2008 .............. 10
Aluminium Outlook.. 11
Table: BMI Aluminium Forecast ............... 11
Copper Outlook ....... 13
Table: BMI Copper Forecast.... 13
Metals Price Outlook................ 15
Table: Stock Levels At London Metals Exchange Warehouses, 2001-2008 (tonnes)....... 17
Global Mining Outlook............. 17
Table: Biggest Chinese Acquisitions In Australia Since 2005...... 19
Table: Global Mining – Top Five Companies By Market Capitalisation (US$mn)......... 21
Table: Global Mining – Key Players’ Future Investment Plans (selected projects)........ 22
Regional Overview 24
Industry Forecast Scenario ....27
Table: Austria Metals Industry, 2006-2013 ................ 29
Macroeconomic Forecasts........ 30
Austria – Economic Activity, 2004-2013.... 33
Competitive Landscape.........34
Company Profiles..36
VoestAlpine.............. 36
Austria Metall AG.... 38
Global Assumptions ..............39
Table: Global Assumptions, 2007-2013..... 39
Table: Developed States GDP Growth, 2008-2010 .... 41
Table: Emerging Markets GDP Growth, 2008-2010 .. 42
Table: Commodity Prices, 2007-2010........ 43
BMI Methodology ..44
How We Generate Our Industry Forecasts 44
Cross Checks ........... 44