SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION. Enrico Paladini, sales director

Transcription

1 SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION Enrico Paladini, sales director September 2011

2 Marcegaglia at a glance The Oversupply Phase What s Next? The Galvanized and Colour Coated Italian Market SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 2

3 Marcegaglia at a glance MARCEGAGLIA TODAY Marcegaglia is market leader in Europe and among the world s top companies in the transformation of steel. 5,5 million ton processed yearly (2011e) 4,8 billion euro sales (2011e) 7,500 employees 1 st product range in the world, in terms of width and variety 50 plants, 51 sales offices 210 representations 15,000 customers 6,000,000 sqm manufacturing areas SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 3

4 Marcegaglia Key Features Ownership 100% Marcegaglia family Strong market presence (more than 15,000 customers) Strong company values Wide range of products Focus on quality, service, innovation High diversification of markets Obsession with growth, constant and self-financed throughout 50 years Economies of scale + production flexibility Unique strategic positioning SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 4

5 Marcegaglia Key Features ONGOING INVESTMENT PLAN ( ) ON THE GROUP INTERNATIONAL SITES Munhall, Usa 25 million euro production of stainless steel tubes Dudley, UK 15 million euro production of carbon steel tubes Kluczbork and Praszka, Poland 110 million euro new steel service centre, production of welded tubes, refrigeration tubes, insulating panels, guardrails Vladimir, Russia 25 million euro production of stainless steel tubes, stainless steel service centre Ravenna, Gazoldo, 500 million euro Casalmaggiore, S. Giorgio di Nogaro 1 new cold rolling mill, 2 Galvanizing lines, 1 plate normalizing furnace, expansion on steel centre and heavy wall welded tube production. Yangzhou, China 150 million euro Garuva, Brazil 60 million euro new steel service centre, production of carbon and stainless steel tubes, refrigeration tubes Timişoara, Romania 10 million euro production of insulating panels new steel service centre, production of welded tubes, cold-drawn tubes, stainless steel tubes and refrigeration tubes SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 5

6 Marcegaglia: carbon steel flat products capacity Pickling 3 3,500,000 t/y Cold rolling 8 2,500,000 t/y Annealing 75 1,200,000 t/y Skinpassing 6 1,200,000 t/y Hot dip galvanizing 5 2,000,000 t/y Pre-painting 2 570,000 t/y Strips 1,300,000 t/y Decoiled sheets ,000 t/y Heavy plates 1 400,000 t/y SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 6

7 Marcegaglia Ravenna plant The group s main flats production plant High output steel processing equipments designed to maximize efficiency for standard grades and large widths HRP&O, CR and HDG strips provision in large quantities with quick turnaround Large raw material inventory Europe s largest service center Owned Harbor docks and double track railway Main logistics and intermodal hub (2 million ton/year) 700 employees Surface 550,000 sqm, of which 280,000 covered SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 7

8 The Oversupply Phase PRODUCTION SIDE 127 million metric tons world crude steel production for the 64 countries reporting to the World Steel Association in July 2011 Crude steel production World mmt ROW mmt China mmt World % ROW % China % China crude steel production was 59.3 mmt, 15.5% increase compared to July 2010 production mmt growth % year on year EU 27 production was 14.5 mmt (+5.9%) Turkey produced 2.9 mmt, 19.3% higher than July feb 10 mar 10 apr 10 may 10 jun 10 jul 10 aug 10 sep 10 oct 10 nov 10 dec 10 jan 11 feb 11 mar 11 apr 11 may 11 jun 11 jul 11 (source: worldsteel) SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 8

9 The Oversupply Phase PRODUCTION SIDE but... Steel capacity utilisation ratio 100% the world crude steel capacity utilization ratio of the 64 countries in July 2011 was 79.7%, 3.4 percentage points lower than in June % 80% 70% 79.4% 82.8% 74.8% 75.9% 81.9% 79.7% This means we are entering the cuts phase, and. 60% 50% feb 10 mar 10 apr 10 may 10 jun 10 jul 10 aug 10 sep 10 oct 10 nov 10 dec 10 jan 11 feb 11 mar 11 apr 11 may 11 jun 11 jul 11 (source: worldsteel) SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 9

10 The Oversupply Phase PRODUCTION SIDE. and raw material costs do not help steel mills. On the contrary, they are facing a new upward trend in price condition. Steel capacity utilization ratio vs. raw material indicators (index) Selected raw material indicators, (USD) Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Estimated Range Jul/Aug/Sep % 90% Steel capacity utilization ratio (%) Iron ore Coking coal (FOB, Australia) / % 120 Prime industrial scrap / 510 Pig iron (FOB, S. America) Slab (FOB, Brazil, tier I mills) (source: WSD) / / % 60% index 100 = oct 2010 oct 10 nov 10 dec 10 jan 11 feb 11 mar 11 apr 11 may 11 jun 11 jul SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 10

11 The Oversupply Phase DEMAND SIDE In the EU, during the first 6 months of 2011 steel demand has been rising by almost 6%, even though the outlook for the second half is not as positive. Development of the main steel using sectors - forecast July 2011 % change year-on-year in the SWIP ( Steel Weighted Industrial Production) index % share in total Consumption Year 2010 Q111 Q211 Q311 Q411 Year 2011 Q112 Q212 Q312 Q412 Construction Structural steelwork Mechanical engineering Automotive Domestic appliances Shipyards Tubes Metal goods Others TOTAL Year 2012 source: EUROFER SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 11

12 The Oversupply Phase PRODUCTION SIDE but... We can identify some key factors that will cause steel demand to stay positive in the coming future: a significant recovery of steel demand in the Middle East and North African countries a recovery in Japanese domestic demand as re-construction activity accelerates further gains in the developing countries demand, including sizeable increases in Brazil and India in China, the government is becoming less afraid about high inflation in 2012, resulting in an expected rise of demand even Western regions are expected to slowly and gradually recover SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 12

13 The Oversupply Phase OVERCAPACITY: DEFINITIONS The steel industry is not facing a case of global overcapacity - thanks to the balance of production and consumption at a global level instead we should talk of regional overcapacity, affecting some steel products and activities in specific areas. SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 13

14 The Oversupply Phase REGIONAL OVERCAPACITY During the steel golden period ( ) we have witnessed major investments aimed to produce / process / distribute within mature economies. The results of this process came to the field at the same time of two other specific events: the industrial relocation process of steel users ( ) the great economic depression (end ) SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 14

15 The Oversupply Phase REGIONAL OVERCAPACITY: THE ITALIAN CASE Fragmentation of the steel distribution sector In Italy, two key examples of regional overcapacity are: the processing of galvanized products the activity of steel service centres ITALY EU Top five Others Top five Others 75% 69% 25% 32% SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 15

16 The Oversupply Phase OVERCAPACITY: SUGGESTIONS FOR A SOLUTION A new version of the traditional concept of consolidation: vertical consolidation throughout the steel industry is one of the key solutions to the overcapacity issue. The financial crisis and the global economy slowdown have caused a recent deceleration in the process, but Merger & Acquisition remains the highway to take in order to cross the negative cycle. SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 16

17 The Oversupply Phase SOME EXAMPLES OF VERTICAL CONSOLIDATION MILL CONSOLIDATORS SSAB JV Anshan / Stemcor FLAT SCC / DISTRIBUTION Tibnor Polska (PL) SSC Maastricht (NL) USS Ltd. (UK) DISTRIBUTION CONSOLIDATORS Anshan Viganò (IT) Essar Servosteel (UK) Baosteel NMLK Sid. Modenese (IT) Jemappes SSC (BE) Manage SSC (BE) Safef Belgium (BE) SSC Becker (DE) Macsteel SC (US) Gnida SSC (DE) Kloeckner & Co. Knauf Interfer RTS Processing (SE) BE Group SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 17

18 The Oversupply Phase OVERCAPACITY: SUGGESTIONS FOR A SOLUTION An improved management of production capacity is the most important feature related to M&A. Which includes: growth prospects in the economies of scale increase capability to negotiate raw material price enter new locations and acquire capacity in lower-cost locations SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 18

19 The Oversupply Phase OVERCAPACITY: SUGGESTIONS FOR A SOLUTION Other roads to explore for small sized/regional companies may include: expanding the product range focusing on innovative products locating in emerging markets lowering costs promoting associations among producers (within antitrust regulations) SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 19

20 What s Next? The short term view CAPABILITY OF MANAGING CAPACITY Steel capacity utilization will return to the levels of Thanks to a high grade of flexibility and overcapacity, steel producers will be able to swing within very short term. China is an example of such flexibility. China: capacity utilization rates of crude steel, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (source: NBS, CBI China) SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 20

21 What s Next? The short term view CUSTOMER LOYALTY Steel mills need to be creative in order to keep customers loyal. Some key features: indexed contracts reward-based policies extreme orientation to service higher technical standards for products SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 21

22 What s Next? The short term view TRADERS ROLE Current trends point to a change in the steel trader role. Traders are forced to offer a short term service instead of the historical attitude to long-term import/purchasing. Traders are switching their competition from steel producers to steel service centres and stockholders, offering products available from docks. SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 22

23 What s Next? The short term view REDUCED PRICE VOLATILITY / SQUEEZED MARGINS In the very short term, we foresee prices moving only laterally. Total deliveries and stocks held at works - Tot. strip mill Total Eurofer deliveries kt/m Stocks held at works - kt n.b.: end of the period Stocks in mths/del. (compared to the last 6 moving months) They are expected to take off as soon as the clash between the two opposed trends stock reduction policy (buyers) capacity cuts (producers) will occur Y 2004 Y 2005 Y 2006 Y 2007 Y 2008 Y 2009 Y 2010 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09 Maj 09 Jun 09 Aug 09 Sep 09 Oct 09 Dec 09 Jan 10 Feb 10 mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 (source: Eurofer) SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 23

24 What s Next? The long term view: ongoing volatility EXTERNAL FACTORS volatility of currencies volatility of raw material prices role of financial investors great abundance of information SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 24

25 What s Next? The long term view: ongoing volatility SUPPLY FACTORS pressing costs for producers increased flexibility in the usage of capacities expectations of short-term returns (public companies) SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 25

26 What s Next? The long term view: ongoing volatility DEMAND FACTORS uncertainty of demand difficulty in accessing credit speculative role (in the short term) of steel service centres/traders/distribution: wait and see strategy that hides the apparent demand, often followed by hysterical purchasing policy. SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 26

27 What s Next? The long term view: ongoing volatility VOLATILITY: CONSEQUENCES shorter and more efficient stock management suppliers managing shorter delivery (regional producers taking advantage) long-term contracts indexed to raw material price hedging SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 27

28 The Galvanized and Colour Coated Italian Market PRODUCTION SIDE Italy: production of galvanized and organic coated coils (million tonnes) galvanized coils organic coated GALVANIZED COILS ORGANIC COATED (source: Federacciai). but the near future SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 28

29 The Galvanized and Colour Coated Italian Market PRODUCTION SIDE the near future will pose new challenges, considering the capacity additions... Production capacity estimates 2012 / ITALY Galvanized coil Marcegaglia Riva Arvedi ArcelorMittal TOTAL 2,000 k tonnes 3,200 k tonnes (est.) 1,000 k tonnes (est.) 800 k tonnes (est.) 7,000 k tonnes Colour coated coils Marcegaglia 450 k tonnes ArcelorMittal 300 k tonnes (est.) Others* 100 k tonnes (est.) TOTAL 850 k tonnes (*) = Lampre, Plalam, ARV, Varcolor, Alusteel. which will imply a major role of the Italian producers in EU and mediterranean countries. SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 29

30 The Galvanized and Colour Coated Italian Market CONSUMPTION SIDE However, the consumption of coated products should return soon to the peak. Galvanized coils consumption - Italy KT YEAR SHIPMENTS IMPORTS (of which: imports from extra EU) EXPORTS TOTAL CONSUMP SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 30

31 The Galvanized and Colour Coated Italian Market CONSUMPTION SIDE Colour coated coils consumption - Italy YEAR SHIPMENTS IMPORTS (of which: imports from extra EU) EXPORTS TOTAL CONSUMP KT SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 31

32 The Galvanized and Colour Coated Italian Market CONSUMPTION SIDE: SOME REASONS FOR OPTIMISM The evolution of consumption of galvanized products World gross consumption (KT) Europe gross consumption (KT) Mature Economy China gross consumption (KT) Emerging Economy hot rolled cold rolled galvanized MARKET SHARE galvanized vs hot 23,53 % 24,88 % galvanized vs cold 49,12 % 50,93 % hot rolled cold rolled galvanized MARKET SHARE galvanized vs hot 37,39 % 40,35 % galvanized vs cold 65,00 % 68,87 % hot rolled cold rolled galvanized MARKET SHARE galvanized vs hot 14,73 % 15,28 % galvanized vs cold 37,95 % 36,75 %. shows a better performance than hot and cold rolled products: when consumption grows, coated products lead the way. And a greater potential is expected in emerging economies. SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 32

33 The Galvanized and Colour Coated Italian Market CONSUMPTION SIDE: SOME REASONS FOR OPTIMISM In fact, after the crisis, steel consumption is rising constantly. EU apparent consumption of finished steel products F2011 (source: WORLDSTEE, update ) SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 33

34 The Galvanized and Colour Coated Italian Market CONSUMPTION SIDE: GALVANIZED KEY SECTORS FORECAST EU-27 CONSTRUCTION SECTOR EU-27 AUTOMOTIVE SECTOR F2011 F F2011 F2012 (source: Eurofer, 7 Sept 2011) (source: Eurofer, 7 Sept 2011) 2005= index = index 100 Construction: 20,4% share on total galvanized consumption (source: WSD) Auto & trucks: 42,6% share on total galvanized consumption (source: WSD) SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 34

35 The Galvanized and Colour Coated Italian Market CONSUMPTION SIDE: SOME REASONS FOR OPTIMISM Italy is a mature economy, yet today represents a bridge to catch the development in some post-revolution emerging countries: North Africa Middle East as well as having a good logistics access to the: Eastern European markets SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 35

36 The Galvanized and Colour Coated Italian Market CONSUMPTION SIDE: SOME REASONS FOR OPTIMISM The current quota of imports vs consumption 39% for galvanized 47% for colour coated represent an important volume that could be absorbed by the new capacities coming. As price volatility will affect future purchasing strategies, customers will need: shorter and more efficient stock management, with local suppliers handling shorter delivery times; reliable suppliers offering long-term contracts linked to raw material index; producers offering a wide range of products / quality / innovation. Therefore, local producers can be preferred. SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 36

37 The Galvanized and Colour Coated Italian Market CONSUMPTION SIDE: SOME REASONS FOR OPTIMISM In fact, we are witnessing a decrease in import licences for coated products, down again to levels registered at the end of 2010 (after reaching a peak in June 2011). Import licences - strip mill products KT Jan-July Jan 2010 Feb 2010 Mar 2010 Apr 2010 May 2010 Jun 2010 July 2010 Aug 2010 Sep Oct 2010 Nov 2010 Dec 2010 Jan 2011 Feb 2011 Mar 2011 Apr 2011 May 2011 Jun 2011 July 2011 Aug 2011 hot rolled metallic coated cold rolled organic coated SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 37

38 The Galvanized and Colour Coated Italian Market CONSUMPTION SIDE: SOME REASONS FOR OPTIMISM Research and development activities are playing a key role as well, through: engineering of new steel products in terms of alloys, mechanical properties technology advancements in coating materials, such as zinc-magnesium There is increasing social and political focus on a global solution to reduce CO 2 vehicle emissions and to limit the reduction of raw material resources. The galvanizing process, the coating of ultra-high strength steels and new coating technologies represent a solution to these challenges. SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 38

39 Conclusions The demand for galvanized and coated products has growth prospects on regional and global scale Overcapacity is an issue but steel mills are enough smart and mature to manage it The role of imports in the Italian market on coated products will be scaled down Italian producers will play a central role on coated products in the European and Mediterranean markets, and Marcegaglia is aspiring to the leading position SUPPLY/DEMAND BALANCE AND THE OUTLOOK FOR FUTURE PRODUCTION 39

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