Damstahl Stainless Steel Briefing January 2016 Damstahl Damstahl 2016, 2016, Damstahl --a member of of the the NEUMO-Ehrenberg-Group - 1 -
Report on Market Highlights Contents Stainless Steel at a Glance European Industry News & Business Climate (PMI) Market Performance: Relevant Issues in Germany Netherlands Denmark Sweden Norway Slovenia Finland - 2 -
Stainless Steel at a Glance Tough start after a tough year The new year in the stainless steel industry starts where 2015 ended. Due to subdued demand, prices mostly remained unchanged and the pressure on margins is expected to continue throughout Q1/16. Raw materials are on historically low levels and yet there is no sign of any major improvements in the forthcoming months. Distributors are still reluctant with restocking as the market slowdown points towards another fall of the alloy surcharge in February. Alloy surcharge: Stainless surcharges for January fell again as the slump in Nickel prices does not come to an end. Finnish stainless producer Outokumpu set the surcharges for type 304 (1.4301) at 927 EUR/t, down from 1,014 EUR/t in December 2015 corresponding to a decline of around of around 9%. January surcharges for type 316 (1.4401) were set at 1,231 EUR/t, corresponding to a decline of 102 EUR/t on the December 2015 surcharge (-8% mom). Market Segments: Building & Construction: The European building and construction association Euroconstruct predicts a growth of the total construction output by 1.6%, downgraded from its previous forecast of 1.9% at the summer conference in Warsaw. Strongest growth in 2015 was recorded in Ireland (+10.6%), Slovakia (+10.3%), Czech Republic (+7.4%) and the Netherlands (+6%). For 2016 the growth rate was revised from 2.4% to a record high of 3% while the 2017 forecast remained unchanged at 2.7%. Consumer Goods: Exports of German consumer electronics increased to 15.4 bn. EUR in October (+4.2%). Despite a growth rate well below the 2015 average the highest October rate ever was recorded. Sales saw strong increases from Sweden (+50.7%) and the Czech Republic (+22.1%) while deliveries to Russia (-26.0%), Brasil (-23.8%) and China (-11.3%) heavily declined. In the nine month period from January to October 2015 exports of German consumer electronics totalled 144.1 bn. EUR (+6.9% yoy). Automotive: The passenger car market recorded a strong increase in November 2015, marking the 27 th consecutive month of growth. New passenger car registrations in the European Union amounted to 1,085,259 vehicles, rising by around 14% compared to the same month last year. Spain (+25% yoy), Italy (+24% yoy) and France (+11% yoy) once again led the field with double-digit growth rates. In the first eleven months of 2015 passenger car registrations totalled 12,603,855 units, surpassing the 2014 full year volumes. Process Industry: According to the German engineering association VDMA the German mechanical engineering industry showed solid growth in November 2015 when rising by around 6% compared to the same month of 2014. The number of both domestic (+9% yoy) and international orders (+4%) increased. In the more meaningful three month comparison from September to October 2015 a decline of 2% yoy was reported, mainly due to a declining intake of international orders (-4%) while orders from the Eurozone improved by almost 14%. - 3 -
European Industry News / Business Climate Industry News Business Climate at a Glance PMI - 4 -
European Industry News Melting production down by 3% The European stainless crude steel production amounted to approximately 6 mill. t in the first ten months of 2015, which is around 3% less than in the same period of 2014. Production in Belgium, Finland, Slovenia, Spain and Sweden increased while production volumes in other European countries declined. Finnish Outokumpu announced to have finished its NORSOK certifications process for its quarto plate business in Degerfors, Sweden with the final approval for both machinery and products in late December 2015. The certification process followed a 100 mill. EUR investment in new equipment which comprised of six new furnaces for heat treatment as well as other capacity and capability enhancement measurements. Towards the end of the year Sandvik implemented the final phase of its supply chain optimization programme, expecting annual savings of around 600 mill. SEK. The total number of production units will be reduced by 23, of which 7 are closed to date. Targeted savings for the whole programme are 1.3 bn. SEK for continuing operations. Sandvik s special steel unit Sandvik Materials Technology is expected to contribute with annual savings of 89 mill. SEK at year end 2017. Italian special steel mill Cogne Acciai reports a decline in turnover for the full year 2015 of around 6%, totalling 440 mill. EUR, set against 469 mill. EUR in the full year 2014. According to the company, the decrease mainly came due to a weak second half of 2015, especially from the weakening oil and gas industry. For 2016 Cogne Acciai expects to generate around 462 mill. EUR in sales (+5%) even though the company anticipates Q1/16 to be only slightly better than Q4/15. In December 2015, Tubacex signed a loan agreement with the European Investment Bank (EIB) for 65 mill. EUR to strengthen the company s research, development and innovation activities. The investment will be carried out over the next four years and will have an impact on the group's activity at a global level, with important investments in Austria, Italy and Spain. - 5 -
Where do we stand in the business cycle? PMI Status November 2015 USA and China falter while EU showed solid expansion Nov-15-6 -
China Monthly Exports October 2015 Long Products were stable in October while Flat Products declined - 7 -
Market Performance in Damstahl-Land Summary: Relevant Issues in Damstahl-Land Germany Netherlands Denmark Sweden Norway Slovenia Finland - 8 -
Relevant Issues in Damstahl-Land Germany, Netherlands Germany: The situation in the demand in the German stainless steel market did not change much in early 2016. After a relatively quiet start into the new year order intake started to pick up in mid-january but still at a moderate level. The renewed Ni price slump at the turn of the year intensifies the battle for prices, putting additional pressure on margins by further raising the competition. Given the current market situation, the new normal to go for low volume purchases continues. Voith: The German engineering company reports an order intake for the full year 2015 totalled 4,389 mill. EUR, corresponding to a marginal decline of 0.5% compared to 4,404 mill. EUR in full year 2014. Revenues rose from around 4,168 mill. EUR in 2014 to 4,302 mill. EUR in 2015 (+3% yoy). EBITDA in 2015 amounted to 270 mill. EUR, up by around 15% set against an EBITDA of 235 mill. EUR in 2014. Due to restructuring expenses which the company s success programme Voith 150+ incurred, Voith s EAT turned from a 41 mill. EUR profit in 2014 into a 93 mill. EUR loss in 2015. GEA Group: The group reports a preliminary order intake of 1,240 mill. EUR in Q4/15 representing an increase of 7.1% compared with the order intake of 1,158 mill. EUR in Q4/15. According to GEA larger orders from a broad range of customers contributed to the highest order intake since Q2/13 at 1,220 mill. EUR despite depressing market conditions in GEA s main segments. Netherlands: The demand for stainless steel in the Dutch market is just as low as raw material prices let assume. Inventories remain on a minimum level as stockholders still see short ex-mill delivery times and try to avoid unnecessary capital binding. Bad news on the oil price and the raw material price development make it difficult to find a constructive long term solution. Especially companies in the building and construction sector as well as the oil and gas industry showed no major changes in activity, while on the other hand, the food industry as well as the machine industry are still improving. AkzoNobel: AkzoNobel and German Evonik Industries broke ground for their production joint venture in Germany. The new chemicals plant will be built near AkzoNobel s site in Ibbenbüren in North Rhine-Westphalia and is due to come on stream by Q4/17. The annual nameplate capacity is rated at around 130,000 t of potassium hydrogen solution and 82,000 t of chlorine. Corbion: At the end of 2015, biobased food ingredients and biochemical producer Corbion signed a US Private Placement Notes program with four institutional investors about the issuance of 125 mill. USD. The programme consists of one tranche with a maturity of ten years and a fixed interest rate of 4.17%. Royal Dutch Shell: In December 2015, Shell took the final investment decision to build a solvent deasphalter unit at its Pernis refinery in the Netherlands. Construction work is planned for 2016 with the completion expected for 2018. By this investment Shell Pernis now is the largest integrated refinery complex in Europe. - 9 -
Relevant Issues in Damstahl-Land Denmark, Sweden Denmark: Prices in the Danish stainless market are further dropping due to the continued decline in the alloy surcharges. The general volatility in pricing is likely to keep the fierce competition up also in early 2016. Activity in the energy sector is satisfying while the food and beverage segment is recovering. Vestas: In early 2016 the global energy company secured a large order for the installation of 34 wind turbines with a total capacity of around 117 megawatts to the Finnish Vaasa region. Although the value of the project was not disclosed, experts are rating the investment in onshore-windparks to be calculated by around 1 mill. EUR per megawatt. Delivery is scheduled for 2017. Danish Crown: The new joint venture of the two slaughterhouse companies Danish Crown and Germany-based Westfleisch, one of the top five European meat suppliers, was granted approval by the EU Competition Authority in Brussels and is running under the name WESTCROWN. Facilities will be located in the south of Osnabrück, Lower Saxony, Germany and are expected to become operational in early 2016. Sweden: As the winter break in the Swedish stainless market began early in 2015 and only just ended in mid- January, trends for the new year are hard to tell at this point. After a challenging 2015 the decline in alloy surcharges in January 2016 once again puts price pressure on distributors. Enduser activity is just as weak as at year s end. Alfa Laval: The company secured five larger orders in December for a total of 600 mill. SEK. The orders include the delivery of heat exchangers to a petrochemical plant in South Korea (170 mill. SEK) and to a Liquid Natural Gas plant in the US (60 mill. SEK). Another order from the US comprises of the supply of air coolers to a gas-fired power plant (60 mill. SEK). Valued at 100 mill. SEK is the supply of pumping systems to an oil platform outside Aberdeen, Scotland, in the North Sea. The largest order with a value of 210 mill. SEK is about the supply of various equipment to a brewery plant in Mexico. KFI Kapital: The investment company announced to have sold waste water treatment company Purac, of which it held 92.2% of the shares through a subsidiary. The new owner is SDIC & Beijing Drainage Investment Fund, a fund majority-owned by the state-owned Beijing Drainage Group. In 2015 Purac generated approximately 730 mill. SEK in revenues with 143 employees in four countries. - 10 -
Relevant Issues in Damstahl-Land Norway, Slovenia Norway: December was very quiet and so started the new year. The harsh drop of around 70% since mid-2014 in oil prices for both WTI and Brent crude oil to 30 USD/bbl or even below worsened the situation for the already tarnished Norwegian stainless steel market. Investments in the oil and gas market remain on a low level and some projects were even put on hold as they have become uneconomical at current price levels. Also the Norwegian krone has fallen more than 30% against the US dollar in the same period. Statoil: The company announced to buy an 11.9% stake in the Swedish oil exploring company Lundin Petroleum for 4.6 bn. SEK. Marking Statoil s first larger investment since the oil price slump in mid-2014, the company announced to further focus on the home market. After discovering some of the largest petroleum fields in decades off Norway in recent years, Lundin became the largest independent oil company in Europe. Aker Solutions: In early January the company announced to streamline its Norwegian maintenance, modifications and operations business down to one regional unit. Around 900 permanent positions of Aker Solutions workforce will be affected, both on- and offshore. Half of the reductions will start immediately through regular employee turnover, reassignments to other parts of the company and redundancies. Further workforce adjustments will strongly depend on the market development throughout the year. Since July 2014 the company reduced its workforce by around 1,300 employees in reaction to the market slowdown. Slovenia: Slovenia Statistics: Unemployment in November was stable at around 11.7%, the same rate as in October and slightly below the 20-year average of 11.78%. The number of unemployed persons decreased slightly by 76 to 107,412 while employment rose by 976 to 811,382. Largest gains were reported in the manufacturing segment while employment went down in the construction segment. Metal Ravne: The company announced to have completed its 20 mill. EUR investment in the modernization of its steel plant. Over the course of 2015 the 45 t ultra high power electric arc furnace was modernised and a new 45 t vacuum ladle furnace was installed. The investment will enable Metal Ravne to produce up to 12,000 t of ingots (10,000 t before the investment) and widens the product range to stainless steels and low carbon steels. - 11 -
Relevant Issues in Damstahl-Land Finland Finland: The Finnish stainless steel market was very calm in December and companies started their holiday period early. In addition to subdued demand and a volatile raw material market, the overall weakness in the Finnish economy continues to lift unemployment rates. High labour costs make it difficult to regain competitiveness compared with Sweden and Germany, two of the countries main trade partners. According to the Nordic bank Nordea, the economy is likely to further contract, growing at half the pace of Greece by 2017. Kemira: After the successful ramp-up of the new capacity for the production of bleaching chemicals in Oulu, Finland, in Q3/15, Kemira announced to further invest into this segment. The company started a pre-engineering study for additional capacity in the Nordic countries with the aim to invest in new production lines in Finland and to debottleneck the existing units. Onvest: In mid-january the company announced to sell its distribution subsidiary Onninen to Finnish Kesko. Onninen is a leading provider of material services in the baltic region, looking back on a century long history. The completion of the acquisition is subject to the approval of the European Commission and is expected to be finalized in HY1/16. Onninen s steel business is not included in the acquisition, and will be transferred to Onvest Group in connection with the transaction. Onvest intends to continue the development of the steel business on a standalone basis in the future. - 12 -
- 13 - Damstahl Stainless 2016, Damstahl Steel Briefing - a member No. 99 of January the NEUMO-Ehrenberg-Group 2016