30/10/2015
World Steel News 29/10/15
Economic recovery in Spain favours steel industry
After years of stagnation, Spain has finally stepped onto the path of recovery. Positive repercussion has been seen in the steel industry first of all thanks to improved performance of main steel consuming areas. Positive changes in the country's business environment have been already noticed by some major steel makers which seem to be eager to improve their presence in Spain by investing in steel projects. But of course not all the players have managed to go through hard times and benefit from long-awaited recovery.
Both the European Commission and the IMF have recently raised their 2015 economic growth forecasts for Spain (to 2.8% and 2.5% respectively), making it the fastest growing EU country after Ireland, Poland, and few others. The reasons behind a faster economy growth are European Central Bank’s recovery programme, the decline in oil price and the depreciation of the euro which supports exports.
In 2014 apparent steel consumption in Spain reached 11.5 million t, according to Unesid. “During the first seven months of 2015 apparent steel use inched up by 3.4% y-o-y. We expect the year to finish in a similar range as the effect of the recovery is felt in almost all the sectors with prudential rates of growth,” Chief Economist of Unesid told Metal Expert.
The strongest steel consuming sector in Spain is automotive. In 2014 Spanish automobile manufacturing increased to its highest level in five years totalling 2.4 million cars. That represented an 11.1% growth for the sector, boosted primarily by improved demand from abroad, with exports up by 8.5% last year. The results make Spain the ninth largest automobile producer in the world and the second largest car manufacturer in Europe after Germany. “It is very good news for the sector. We expect an increase of 8.3% in 2015, which will bring production to 2.6 million units,” said analysts from Spanish Commercial Bank.
After seven consecutive years of decline, the production value in the construction sector in Spain is predicted to grow by 3% in 2015, according to risk management and credit services society, CESCE. The fastest growth will be seen in buildings restoration and maintenance (+3.9%), followed by non-residential construction (+3.2%), residential construction (+2.8%) and civil works (+1.8%). “We are supplying apartments and public construction sectors with HRC and long products. It is just a beginning of recovery but I should notice that our sales have increased a bit in this year,” a Spanish trader told Metal Expert. A representative of another Spanish company dealing with long products said “I see some recovery.”
Steel market recovery in Spain would not be possible without industrial activity pick up in EU. The Spanish steel sector is highly dependant on export as more than 65% of the total production is sold abroad with significant share in Europe. In 2014 Spain exported 9.9 million t of steel, according to Unesid. Moreover, as steel consumption is driven mainly by automotive sector, healthy demand for Spanish vehicles in EU which accounts for 85% of sales is supporting the country's economy.
Given all above, ArcelorMittal, the sole flat products producer in Spain, has announced a massive investment into equipment modernization this year to be able to benefit from better market conditions not only in the automotive industry where company already has solid positions, but also in much smaller sectors. The company intends to spend a total of around EUR 228 million for improvements at plants in Aviles and Gijon. ArcelorMittal will spend about EUR 100 million on modernization of the BOF at the mill in Aviles to diversify the production of slabs and heavy plates to supply petrochemical and renewable energy sectors. EUR 128 million will be invested into the plant in Gijon. EUR 100 million will be spent on coke batteries refurbishing. Also, the company will spend EUR 24 million to improve production of rails to get advantages in the growing railway market. EUR 4 million will also go to Gijon for energy improvements implementation at the wire rod mill.
Swedish steelmaker SSAB plans to increase supplies to Spanish automotive industry. Being one of the leaders in development and production of light and extra high strength steels (AHSS), SSAB is going to raise shipments to Spain by 14% in 2015 to 225,000 tpy (EUR 132 million), said Pedro Rodriguez, SSAB’s chief sales officer in Spain and Portugal. In words of Mr. Rodriguez, Spain is the third largest export sales outlet for SSAB after Germany and Italy.
At the same time, some local companies have failed to survive in severe market conditions in the years of crisis. In particular, the steel distribution and processing group Ros Casares went to liquidation after bankruptcy in July 2014. Longs producers Grupo Alfonso Gallardo and Siderurgica Sevillana (part of Riva Group) had to keep adjusting production in line with demand changes which undermined a financial performance of both companies. Moreover, despite ongoing economic recovery and noticeable pick up in steel demand, Spanish steel market remains depressed in terms of steel prices which keep going down in line with general world trend. Significant import volumes (8.3 million t in 2014; +27% y-o-y in Q1 2015 ) is also adding pressure to the market.
Despite some signs of improvement, future scenario of Spain's economic development is still questionable as GDP growth based mainly on low oil prices, depreciated euro and low interest rate might be quite shaky.
