market report june

8/3/2019 Market Report June

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1)Based on information available as of June 30th, 2011

7th

July 2011

Economic and Steel Market Outlook 2011-2012

Q3-2011 Report from EUROFERs Economic Committee1)

EU macro-economic overview(y-o-y change in %)

EUROFER ForecastJuly 2011

EU

2009 2010 2011(f)

2012(f)

GDP -4.2 1.8 1.9 1.8

Private consumption -1.7 0.9 0.9 1.2

Government

consumption2.0 0.7 0.1 0.1

Investment -11.6 -0.1 3.0 3.5

Investment in mach.equip.

-17.7 2.2 5.2 4.7

Investment inconstruction

-6.9 -4.2 0.4 1.9

Exports -12.8 10.5 7.8 5.7

Imports -12.0 9.3 6.1 4.7

Unemployment rate 9.2 9.7 8.7 8.3

Inflation 0.7 2.1 2.9 2.0

Industrial

production-13.8 7.1 5.1 3.6

(f) = forecast

I. EU Macro-economic overview

Q1-2011 GDP growth exceedsexpectations

Indicators signal moderatinggrowth in the coming quarters

Headwinds from fiscal tighte-ning and subdued governmentconsumption

Manufacturing strength looks setto continue

Sizeable risks weigh down onEuropes financial systemIn the first quarter of 2011, EU GDPaccelerated to 0.8% q-o-q, fromonly 0.3% in the preceding quarter.The key drivers for this strong

performance were exports and afurther improvement in domesticdemand. In line with expectations,fixed asset investment provided themain boost to growth in domesticdemand, whereas support fromprivate consumption was muchmore modest. Mild weatherconditions in early 2011 have alsobeen supportive to the rapidstrengthening in economic dyna-mics. Nevertheless, the EUeconomy picking up speed in Q1-2011 camouflages the continuedexistence of a North-South dividedue to large growth differentials atthe country level. Star performerGermany posted 1.5% q-o-q GDPgrowth, while tail-ender Portugalregistered a 0.7% q-o-q drop andsaw the economy relapsing into

recession.


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Germany, the Benelux countries,

France, Sweden and Austria have

reached or have closely approached

pre-crisis GDP volumes, much in

contrast with Italy, Spain and

particularly Greece and Portugal where

the gap remained significant.

Indicators signal moderation in growth

While the economic recovery in the EU

is seen continuing in the quarters

ahead, growth will generally become

more subdued as of the second

quarter. The stimulus from mild

weather conditions has only beentemporary. The EU economy will have

to cope with headwinds from fiscal

tightening and subdued government

consumption.

Moreover, growth prospects have

become increasingly clouded as

sizeable risks weigh down on Europes

financial system.

The most recent forward looking indi-cators and surveys appear to confirm a

slowdown in economic activity in the

second quarter. The EU economic

sentiment indicator lost some of its

previous strength in recent months and

the composite Purchasing Managers

Index - combining signals from the

manufacturing and service sectors - fell

quite sharply in May.

Manufacturing still looking strong

Confidence in industry while

remaining well above its long-term

average level decreased in the April-

May period by 3.1 points from its peak

in March this year. Manufacturing

companies became less optimistic

about the current and expected

production activity and the (export)

order book situation.

March had seen the first month-on-

month decline in industrial new orders

since September 2010. However, order

data for April were more positive again,

with Germany registering 2.4% growth.

The mild weakening in confidence

levels in industry basically reflects

increased uncertainty at the corporate

level regarding the continuation of high

energy and commodity prices, the

impact of the strengthened Euro on

sales abroad and fears for a more

pronounced slowdown in international

trade.Industrial production in the EU

maintained a firm level in the first 4

months of 2011 at approximately 10%

below the peak registered in early

2008. Year-on-year growth remained

at 5%, but month-on-month growth has

clearly moderated.

As manufacturing activity gradually

returns to the levels seen before the

financial crisis, rising capacity


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utilisation rates across most industrial

sectors combined with still high

industrial confidence levels and easier

access to and relatively low costs of

capital suggest that investment in

machinery and equipment will be a keydriver for manufacturing growth in 2011

and 2012. In addition, a modest pick-

up in construction investment is

forecast.

Export demand especially from

emerging Asia will continue to

provide relatively strong impulses to

growth in industrial activity as well.

However, export dynamics will vary

markedly from one country to the

other, depending on their regional

sales and product mix. Owing to its

focus on high added-value goods sales

in Asia, particularly Germany is well

positioned to benefit from the overall

still positive outlook for global

investment goods demand over the

coming quarters.

On balance manufacturing strengthlooks set to continue in the remainder

of 2011 and in 2012.

Headwinds from austerity measures

The positive outlook for investment will

help to offset the negative impact of

government austerity programmes on

domestic demand. While all countries

have started to apply measures aimed

at reducing budget deficits and

restoring financial stability - such as

government expenditure reductions

and higher taxes - the impact of fiscal

restructuring is felt more aggressively

and will have wider repercussions in

the peripheral Eurozone countries with

negative or weak economic growth

than in the core countries.

To a large extent, this burden has to be

carried by consumers in the debt-

ridden countries. Job losses in the

public and private sectors have pushed

unemployment rates to well above the

EU average of 9.4% in April. In

addition, rising inflation and severereductions in household incomes have

created an environment of uncertainty

and social unrest. This will lead to a

decrease or stagnation in private

consumption in the Southern European

countries and Ireland, much in contrast

with the strong dynamics in consumer

spending seen in this part of the EU

before the financial crisis.

Meanwhile, consumer confidence in

Northern Europe is improving as the

economic recovery is translating into

lower unemployment and rising

disposable incomes. Especially in

Germany private consumption looks

set to grow rather strongly this year.

On balance, EU consumer spending is

forecast to rise by on average 1% per

annum in the 2011-12 period.

EU default contagion risk

Despite the 110 billion liquidity inject-

tion provided in 2010 by the EU and

the IMF, Greece is again facing serious

financial problems and the Greek

government is asking for more help to

avoid having to restructure its debt.

The issue is keeping EU policymakers

seriously divided; so far they have not


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been able to reach agreement how to

resolve the crisis. An additional bailout

package including debt extension is

under discussion. The willingness of

Greece to step up efforts to reduce its

excessive debt level and apply structu-

ral reforms will be preconditional for a

next aid payment. This could prove to

be a major hurdle as the Greek

government will have to win political

agreement for an additional set of cut-

throat austerity measures including

further fiscal reforms and asset sales.

As the pendulum appears to be

swinging from countries asking forbailouts to countries considering

defaults, EUs default contagion risk

and potential infection of the European

banking system is a serious threat to

financial stability in the EU. It will result

in high levels of financial market

volatility and will keep yields on

peripheral government bonds under

continued upward pressure.

Monetary pressure is rising

Also EUs monetary policy is putting

interest rates under upward strain.

Despite the increased risk of a Greek

default, the official position of the ECB

remained one of complete opposition

against any set of measures that might

lead to a credit event. In early June,

the ECB signalled its intention to raiseinterest rates at the next policy meeting

in July, provided in between a severe

escalation in financial market pressu-

res does not take place. This makes

clear that against the background of

the sizeable risks weighing currently

down on Europes financial system the

ECB is looking to return its main policy

rate to positive real territory in an

orderly and gradual manner.

The rising trend in inflation appears to

have come to a standstill in May as oil

prices came down from their April

peak. Euro area inflation is estimated

to have come down to 2.7% in May,

from 2.8% in April.While the rising trend in food and

energy costs largely explains current

high levels of inflation which clearly

exceed the ECBs targeted maximum

of 2%, also core inflation is reported to

have risen slightly in recent months.

This will be another reason for the ECB

to remain vigilant.

Despite the potential negative impact

of the Eurozone debt crisis and thelarge uncertainties surrounding its

outcome, the euro has remained

surprisingly strong so far this year. To

some extent, the EU applying a much

stricter monetary policy than the US

can be held responsible for the euro

gaining more than 7% against the US

dollar since the start of the year. A

sharp depreciation of the euro does not

seem very likely in the near term, as


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the divergence in monetary policy

stances between the EU and the US is

likely to persist for the time being.

On balance, continued volatility around

the current exchange rate level seems

more plausible. In the longer term, the

more favourable economic growth

scenario for the US suggests a mild

weakening of the euro could be on the

cards.

Steady but unspectacular recovery

On balance, the latest forecasts of

EUROFERs Economic Committee

confirm the likelihood of the EUeconomy continuing its course of an

unspectacular but steady recovery in

2011 and 2012. Meanwhile, evidence

has become stronger of economic

growth becoming more balanced owing

to an investment-driven rebound in

domestic demand; this will reduce EUs

exposure to international trade. The

manufacturing sector will remain the

sector that benefits the most in this

phase of the upswing, providing

positive spin-off effects to other sectors

as well. While this set of forecasts

assumes that the Greek sovereign

debt crisis will be managed in an

orderly way, it is clear that high

uncertainty levels weigh down on EUs

overall growth perspectives.

Consequently, GDP growth in 2011 isforecast to amount to 1.9%, followed

by 1.8% in 2012. However, these fairly

moderate growth rates continue to hide

significant divergences at the country

level.

EU is facing sizeable risks

It is also clear that the EU will continue

to have to cope with still sizeable risks.

To a large extent, the risks originate

from structural internal problems

relating to the financial and economic

stability in the peripheral Eurozone

countries. Other risk factors have a

global origin and impact. They include

continued high price levels of food,

energy and commodities and

disruptions in the supply from Japan of

electronic and automotive parts and

components. Political unrest in North

Africa and the Middle East fuelled in

the first months of 2011 concerns

about oil supply stability. The region

accounts for 60% of global oil reserves

and 35% of crude output. With theexception of Libya, actual oil

production in the region has remained

quite stable so far. This has had a

calming effect on the energy markets,

but prices have remained at an

elevated level despite some

moderation during May and June.

Prices of other commodities have also

seen a slight decrease in recent

weeks, but this has generally not been

sufficient to mitigate the rise in the first

months of this year. On balance,

material and energy intensive

industries such as the steel industry

still have to live with high prices of iron

ore, metallurgical coal, scrap and

energy.

The Japanese supply constraints are

reported to have had a negative impactin recent months on important steel

using sectors such as the automotive

industry and high-tech engineering

sectors which use specialised

electronics in their products. The

disruption is expected to be a near-

term issue only, as output of Japans

manufacturing sector is forecast to

rebound markedly in the remainder of

the year.


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USA GDP growth weakens in Q1-2011 Indications for Q2 only slightly

better Housing market remains dull GDP growth below 3% in 2011-12GDP growth for Q1-2011 stood at just1.8% seasonally adjusted annualisedrate (SAAR). This substantial cooldown compared with the 3.1%registered in Q4-2010 was caused by aslowdown in private consumption andbusiness investment and a drop ingovernment expenditure. To someextent the deceleration also reflects

harsh weather conditions in early 2011.First indications for Q2 are onlymoderately better. Consumer confi-dence remains under pressure, due tohigh fuel prices and the only slowrecovery of the labour market. Retailsales in April and May have beenrather weak. The latest housing marketindicators signal no improvement; Q1-2011 residential investment declinedfurther as oversupply is keeping house

prices well below their 2006 peak.The ISM manufacturing index isshowing some signs of weaknesslately. High energy prices also weighdown on companies and leave lessroom for business investment.State and local government spendingwill remain under pressure as well;policy makers remain heavily dividedover the approach to rebalancing

government finances.The rise in energy prices remains thekey factor in the upward trend ininflation. The consumer price indexrose in April to 3.1%. Core inflation ismuch more benign, albeit on a slightlyrising trend for 6 months now. Rathersluggish GDP growth will keep inflationdangers at bay for the time being.On balance, the US economy is seengrowing by just below 3% per annum in

2011 and 2012.

Key emerging regions All emerging regions have to

cope with rising inflation China in control modest loss of

momentum in 2011-12

Fiscal tightening to moderategrowth elsewhere too

In China, economic growth amountedto 9.7% (SAAR), driven by robustindustrial production and strongdomestic demand. Since April growthin industrial production and retail salesis easing, as demand started to cooldue to the effect of tighteningmeasures and the slackness in

external markets. China currently hasthe lowest inflation rate of the BRIC(Brazil-Russia-India-China) countries.Inflation has also been tamed by theappreciation of the yuan.GDP growth is seen slowing to 9% in2011 and 8- 9% in 2012.In India Q1-2011 GDP slowed to 7.8%y-o-y from 8.3% in Q4-2010. A furthermoderation is forecast for the comingquarters as private consumption and

investment growth will be affected byrising interest rates and high inflation.Industrial dynamics are seen remainingfirm. GDP growth will slow to 7.5%before picking up again in 2012.Brazil is also facing high inflationdespite more moderate GDP growth.Real interest rates of around 6% areattracting heavy inflows of foreigncapital. This has led to a strengthening

of the real against the US$ which isundermining the competitive position ofindustry. GDP is seen growing by 4%in 2011 and 5% in 2012.In Russia GDP growth is expected togain momentum following a weak 1stquarter due to bad winter weather.Domestic demand is fairly weak andindustrial production growth is slowing.Inflation rose to almost 10% in April,which led to a hike in interest rates in

May. GDP growth may reach 5% thisyear and around 4.5% in 2012.


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II. The EU Steel Market

Overview Steel Using Sectors

Development of the main steel using sectors EUROFER forecast July 2011% change year-on-year in the SWIP (Steel Weighted Industrial Production) index

% sharein total

Consumption

Year2010

Q111 Q211 Q311 Q411Year2011

Q112 Q212 Q312 Q412Year2012

Construction 27 -2,5 8,0 -0,6 -0,3 2,4 1,9 -1,4 4,0 5,0 5,3 3,5

Structural steelwork 11 1,7 9,9 2,3 2,3 1,7 3,8 1,8 3,5 3,9 3,5 3,2

Mechanical engineering 14 9,9 13,7 9,1 8,6 6,5 9,3 6,7 5,6 4,9 5,0 5,5

Automotive 16 20,7 18,0 9,0 8,6 3,6 9,7 3,2 3,9 2,8 2,6 3,1

Domestic appliances 4 2,7 2,8 7,8 3,4 4,7 4,7 4,4 7,7 6,1 5,1 5,8

Shipyards 1 -18,9 -7,8 -7,6 -3,1 0,7 -4,7 -2,0 0,8 1,0 1,0 0,3

Tubes 12 12,7 18,7 6,0 4,6 5,5 8,6 5,3 4,5 4,8 4,1 4,7

Metal goods 12 8,2 12,0 6,9 6,0 5,8 7,6 3,9 4,2 4,7 4,3 4,3

Miscellaneous 3 5,9 4,7 5,7 5,1 4,3 4,9 4,1 3,6 4,6 4,8 4,3

TOTAL 100 5,9 11,8 4,6 4,1 3,9 6,0 2,9 4,4 4,4 4,3 3,9

Mild weather kickstarts activity

Q1-2011: output rises 12% y-o-y

Growth to moderate over the

coming quarters

Solid growth in activity 2011-12The strength of Q1-2011 activity in the

EU steel using industries has clearly

surprised on the upside: total steel

weigthed industrial production (SWIP)

grew almost 12% y-o-y. All sectors

except shipbuilding posted higher than

expected growth in output. Much

milder weather in the first months of

2011 than in Q1-2010 partly explains

the marked year-on-year gains. Alsocatching-up effects following a 2010

December month which was disrupted

by severe winter conditions have been

supportive to growth. The rise,

however, also reflects that particularly

the manufacturing sector is in an

excellent shape owing to the much

improved order book situation.

In addition to still lively export demand

for investment and intermediate goods,there has been a marked rebound in

domestic investment in machinery and

equipment.

In the remainder of this year a

moderation of output growth is to be

expected as the weather-related

impulse disappears. SWIP growth is

seen around 4% y-o-y in the 2nd half of

this year. This will result in 6% output

growth in the whole of 2011.

For 2012, a growth rate of just below

4% seems plausible with sectoral

dynamics showing more convergence

than before.


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Construction

Q1-2011 output revives owing to

mild weather Indications of rebound residen-

tial activity in 2011 Slight improvement sector

dynamics in remainder 2011,further growth in 2012

EU construction activity grew 8% y-o-yin the 1st quarter of 2011. To a largeextent, this growth reflects much milderweather conditions in Q1-2011 than inthe same quarter of 2010. Moreover,

construction activity halted inDecember 2010 due to heavy snowand low temperatures, was resumed atfull speed in the first months of thisyear.The 8% y-o-y growth in Q1 also hideslarge growth divergences at thecountry level. While Spains construc-tion downturn continued with outputfalling by more than 9% - Germanyposted a growth of almost 36% y-o-y.Also Sweden and Poland registeredhigh output growth in the 1st quarter.Construction activity in the EU is seenreturning to a rather subdued level inthe coming quarters. Generallyspeaking, large new constructionprojects have become increasinglyscarce due to reduced governmentbudgets for building and civilengineering. But also privately fundedprojects particularly those in thecommercial and industrial markets

suffer from a lack of funding.

Construction firms have on average

remained dissatisfied with their orderbook situation and overall constructionconfidence in the EU has stalled at adepressed level since early 2011.Nevertheless, there are some positivedevelopments. Indications that residen-tial construction investment is pickingup have become stronger in recentmonths. In a number of EU countriesresidential permits and building startsare on the rise since early 2011, to

some extent stimulated by publiclyfunded social housing programmes.Renovation and modernisation activityis clearly gaining importance in overallconstruction activity. The focus iscurrently on the housing sector(primarily in energy-saving) and civilengineering (transport infrastructureimprovement). While this has a positiveeffect on total construction activity, theimpact on demand for constructionalsteel products is fairly small.Meanwhile, new non-residential andcivil engineering construction activitywill not see much growth before 2012.At the country level, large growthdifferentials will persist. Poland holdsthe best cards for 2011-12, owing tocontinued growth in civil engineeringactivity. Activity in Spain will seeanother significant decline in 2011.On balance, construction output willregister almost 2% growth in 2011

inflated by Q1 growth - followed by3.5% growth in 2012.


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Mechanical Engineering

Continued robust growth in Q1-2011

Drivers: exports and recovery EUinvestment

Signs of sector nearing capacityrestraints

In the first quarter of 2011, output inthe EU mechanical engineeringindustry grew almost 14% y-o-y,continuing the double-digit year-on-

year growth trend which had started inQ2-2010.Robust export demand for equipmentand machinery in combination withstrengthening domestic demand forcapital goods have been the drivingfactors in this positive evolution.In all reporting EU countries, Q1-2011output growth was positive, supportedby a more synchronised performanceat the subsector level.

Order books have been filling upsteadily and lead times are reported tobe rising rapidly.The German mechanical engineeringassociation VDMA reported a 22% y-o-y rise in orders in April. Domesticorders have been rising as rapidly asexport orders in recent months.However, especially in monthlydemand volumes from abroad asideways movement can be observedin recent months, reflecting geopoliticaland economic uncertainties in the main

export markets. Also the effect of thestrengthened euro may have played arole.In the remainder of the year a mildmoderation in output growth is to beexpected. Capacity utilisation rateshave been rising steadily further sinceearly 2011. Market leader Germany isexpected to be nearing full capacityutilisation in the coming months. In

other countries similar trends can beobserved.On balance, mechanical engineeringoutput in the EU is forecast to increaseby almost 9.5% in 2011, a fairly similargrowth as registered in 2010.Next year, a further moderation inoutput growth to on average 5.5% is onthe cards, basically owing to capacityutilisation nearing its limits. This shouldtrigger also new investment in the

sector itself.Meanwhile, global demandfundamentals for mechanical enginee-ring products are to remain quitefavourable. Given the product mix andregional sales focus of the leading EUcompanies, the sector should be wellpositioned to continue to benefit.However, should the Euro strengthensignificantly further against the US$could, EUs export performance couldbe negatively affected.


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Automotive

EU car sales slightly down in 5m-2011, CV sales still rising

Car exports remained strong Output +18% in Q1-2011 2011-2012: growth to continue,

albeit at a more moderate rateIn the first 5 months of 2011, EUpassenger car sales were 0.8% downon the same period of 2010. Thedecline was concentrated in Italy,Spain and the UK - to some extentreflecting fleet renewal schemescoming to an end - and in the smallermarkets affected most by the debtcrisis such as Greece and Portugal. InGermany and France - accounting for35% of EU car sales - demand wasmarkedly better than a year ago.Meanwhile, demand for commercialvehicles continued to grow significantlyin the 1st 4 months of 2011. Total

commercial vehicles sales grew almost16% y-o-y, supported by very strongdemand for medium and heavy trucksand a more moderate growth in salesof light commercial vehicles.Export demand remained very strongso far in 2011. German car exportsgrew 11% y-o-y in the January-Mayperiod.Automotive output grew 18% y-o-y inQ1-2011; capacity utilisation rates

have continued to improve steadily in

recent months and are now nearing the90% level for the EU as a whole.The outlook for the remainder of 2011is quite positive. Producer stocks - andconsequently automotive output - arereported to be in line with downstreamdemand conditions.The EU car market should see thecorrection in car sales due to incentiveprogrammes coming to an end, easingin the months ahead. Some smallermarkets such as Greece and Portugalwill continue to suffer from very weakconsumer confidence levels. Onbalance, EU car sales could stabilisearound the year earlier level.Export demand for cars is seenremaining strong for the time being,particularly in the luxury car marketsegments.The outlook for the commercial vehicle

market is favourable as well. Thegradual continuation of the economicrecovery and improvement in theinvestment climate will have a positiveimpact on activity in the transportsector and consequently on demandfor transport equipment.EU output is forecast to rise by almost10% in 2011 and a further 3% in 2012.


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Tubes

Tube output jumps almost 19%in Q1-2011

Real consumption key driver Positive outlook for all tube

segments in 2011-12

In the first quarter of 2011, productionin the steel tube industry in the EUincreased by almost 19% y-o-y, clearlyexceeding the April forecast for Q1-

2011 activity growth in the sector.The positive growth trend could beobserved in all EU countries.Whereas stock replenishment has notcome to a halt yet, its impact as ademand driver for tubes hasdiminished gradually as inventories inthe tube supply line have been rebuiltsufficiently for current business activity.Owing to the strong increases in Q1-

2011 production in the automotiveindustry, the mechanical engineeringand metal goods sector and highglobal activity levels in oil & gas explo-ration and drilling real consumption ofsteel tubes has become the majordriver in tube demand.The outlook for activity in the steel tubesector in the remainder of 2011 and in2012 is rather positive and sees total

tube production growing steadily in thecoming quarters.

Demand for small and medium-sizedsteel tubes should strengthen furtherover the forecast period with key tubeusing sectors such as automotive,engineering and metal goods expectedto see robust activity growth. Alsodemand from the construction and therelated steel structures sector isforecast to improve, particularly so in

2012.The outlook for the large welded tubesand OCTG market remains favourable.The EIA (Energy InformationAdministration) expects oil markets totighten as growing liquid fuels demandin the emerging economies andslowing growth in non-OPEC supplymaintain upward pressure on oil prices.This implies that oil prices in 2011-12are to remain in the range of 100-110US$/barrel which will have apositive impact on pipeline constructionand drilling activities. Global drillingactivity (measured by active rigs) hassurpassed pre-crisis highs in everyregion with the exception of the US,where it is only slightly below 2008slevels.All in all, total steel tube production inthe EU is forecast to grow by

approximately 8.5% in 2011 andaround 4.5% in 2012.


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Domestic Appliances

Modest output growth in Q1-2011 Improvement housing market

should stimulate demand Output to recover in 2011-12 but

mostly in Central EuropeIn the first quarter of 2011, output inthe EU electrical domestic appliancessector continued its moderate pace of

expansion registered in 2010, buckingthe much more dynamic trend seen inthe other steel using sectors.Demand fundamentals in the electricaldomestic appliances market haveremained subdued so far this year,owing to still muted dynamics in mostresidential property markets in the EUcountries, overall dull consumerconfidence and only the first signs of ahesitant recovery in residential

construction activity in some EUcountries now emerging.At the country level, divergences in theevolution of sector activity persisted inQ1-2011. While output in Spain decli-ned by almost 10% y-o-y, production inSlovakia increased by a robust 15.5%y-o-y. Most other EU countriesregistered slight growth.The current outlook for the electrical

domestic appliances sector in the EUis for a further rise in activity in theyears ahead.

Private consumption is expected to seediverging trends at the country level.While growth is expected in theNorthern EU countries, a decrease orstagnation in private consumption is onthe cards for Southern Europe andIreland due to marked reductions inhousehold incomes as a result of the

austerity programmes.The outlook for the residentialconstruction market is improving: forthis year and next a gradualimprovement in construction activity isforeseen. Still low interest rates andrising consumer confidence incombination with stronger new housingconstruction activity should revive tosome extent the currently still dormantresidential property markets.

All in all, production of domesticappliances is forecast to increase byaround 4.5% in 2011 and by just below6% in 2012. While growth in WesternEuropean output will stabilise around amodest 2.5% per annum, activity inCentral Europe will see double-digitgrowth over the 2011-12 period as themajor appliances manufacturerscontinue to invest in a further build-up

of capacity in Central Europe.


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1) steel intensity is the ratio of steel consumption to steel weighted production in the steel using industries (SWIP). Historyshows that during a recession, steel intensity temporarily becomes weaker due to changes in investment patterns and increasedfocus on cost reduction via material efficiency

13

Real Consumption

Forecast for real consumption - % change year-on-year

PeriodYear2010

Q111 Q211 Q311 Q411Year2011

Q112 Q212 Q312 Q412Year2012

4,4 14,7 4,9 3,8 4,1 6,6 2,7 4,3 4,5 4,0 3,9

Marked growth of real

consumption in 1stquarter 2011

Rate of increase to moderate

over the coming quarters

Real steel consumption in the EU grew

by almost 15% y-o-y in the 1st quarter

of 2011, in sync with the marked

increase in activity in the steel using

sectors and continuing the positive

trend in year-on-year growth which

started in Q2-2010.

As mild weather conditions and

catching-up effects have partly been

responsible for the strong increase in

sector activity and consequently in the

rise in real steel consumption, it is

expected that the rate of increase in

consumption will slow down to a more

sustainable pace in remaining quarters

of 2011 and in 2012.

This implies that the improvement in

demand side fundamentals of the EU

steel market will continue gradually.

The general outlook for the steel using

sectors is positive as activity steadily

closes the gap with pre-crisis levels

over the forecast period. The expected

moderate rebound in construction

activity should particularly stimulate

consumption of long steel products

such as rebars, beams & sections and

mesh quality wire rods which had been

affected significantly in the past years

by the ongoing construction downturn.

Following several years during which

declining steel intensity1) acted as a

drag on real consumption with

particularly a strongly negative impact

during the 2008/09 recession steel

intensity is expected to have a neutral

to positive effect on consumption in the

years ahead.

Real steel consumption is forecast to

increase by around 6.5% in 2011 and

almost 4% in 2012.


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Apparent Consumption

Forecast for apparent consumption -% change year-on-year

PeriodYear2010

Q111 Q211 Q311 Q411Year2011

Q112 Q212 Q312 Q412Year2012

22,1 15,9 2,9 5,8 6,3 7,7 0,7 6,3 5,2 1,9 3,5

Strong rise apparentconsumption in Q1-2011

Some forward buying but stocksstill normal

High imports entering the EU inQ1 and in Q2 as well

Real and apparent consumptiongrowth well aligned in 2011-12

Apparent steel consumption in the EUgrew by almost 16% y-o-y in Q1-2011,driven by the strength in realconsumption and some stock building.The latest EU steel market data showfor the 1st quarter high levels ofdeliveries from EU mills to the

domestic market as well as asignificant increase in third countryimports. As the resulting increase inapparent consumption surpasses therise in real demand, there has beensome forward buying by steelpurchasers, apparently more so by theparticipants in the steel distributionchain than by final consumers.Nevertheless, distribution chain stocksremained relatively well-balanced withdownstream business activity due to

lean inventory management, creditrestrictions and risk aversion.

April-May data signal a moderation indomestic deliveries from EU mills.Imports, however, appear to have kepta rather high level in April. Moreover,

import licenses in May have neared thepeak levels registered in June-July2008 which points to the probability ofeven higher imports having entered theEU in recent months.In the remainder of 2011 and in 2012,real consumption will drive apparentconsumption growth. The stock cyclewill have an overall slightly positiveimpact on apparent consumption inboth years, while following the normal

seasonal pattern of a stock build in the1st half of the year and stock reductionsin the 2nd half.Imports are expected to remain at arelatively a high level over the forecastperiod.All in all, apparent steel consumption isforecast to rise by around 7.5% in 2011and 3.5% in 2012, in line with theexpected growth in real consumption.Key risks for the EU steel marketremain imports rising even faster than

expected and continued high prices forsteelmaking materials.

Annual ApparentConsumptionin Mio Tonnes

2004 179

2005 170

2006 195

2007 204

2008 188

2009 123

2010 150

2011 (f) 161

2012 (f) 167


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15

Imports

Sharp rise in imports in H1-2011,outpacing EU consumption

Rise basically in flats Imports remain key risk for EU

steel market stabilityQ1-2011 customs figures for steeltrade show that imports from thirdcountries have risen by around 43%compared with the same period of2010. The average import volume inthe 1st quarter of this year amounted to

almost 2.6 million tonnes per month.The rise in imports has beensignificantly higher than the actualincrease in apparent steelconsumption, which implies thatimports have gained market share inthis period.Growth in imports has basically takenplace in flat products which have risen53% y-o-y. Particularly quarto plates,hot-rolled coil, and cold-rolled and

organic coated sheets have seenimport pressure rising in recentmonths. In contrast, long productsimports grew by only 19% in the 1stquarter of this year. However, thisgrowth figure hides significantlydiverging trends at the product level:while merchant bar imports rose bymore than 100% y-o-y, there was a20% drop in rebar imports.As far as the main countries of originare concerned, Russia and the Ukraine

accounted for almost 60% of total steelimports into the EU. Also Chinacontinued a strong market presence. Interms of year-on-year growth, Braziland particularly Turkey has stepped upexports to the EU significantly in recentmonths. Both countries together

exported more than China in the 1st

quarter of this year.Estimates for Q2 signal a further 29%y-o-y rise in imports, to 2.7 milliontonnes per month. In the 2nd half of theyear, imports are expected to remain ata significantly higher level than in2010. This will result in total imports in2011 rising by more than 26% which ismuch faster than previously expected.Imports in 2012 are currently seen

rising slightly further.A key risk to this forecast is thirdcountry imports rising even faster orremaining longer than expected atelevated levels. The strong euro andrelatively favourable demand-sidefundamentals have increased theattractiveness of the EU market forexporters. Supply-demand imbalancesbuilding up elsewhere without the

required action to timely adjust output,would exacerbate this situation.


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16

Exports

EU exports declined almost 5%in Q1-2011

EU becomes net importer again EU trade surplus in long

products only Strong Euro and unrest MENA

keep 2011 at the 2010 level Exports may see a rise in 2012Steel trade data show EU steel exports

falling by around 4.5% y-o-y in the 1stquarter of this year. Total exportsamounted to less than 2.2 milliontonnes per months. This means thatthe EU became a net steel importeragain.On an annual basis, the EU hadmaintained a trade surplus during thepast 2 years.Export of flat products fell by around9% y-o-y, whereas exports of long

products increased 3% compared withthe same period of 2010. The tradesurplus for long products amounted to540,000 tonnes per month in the 1stquarter, mainly in rebars and heavysections. Net imports of flat productsreached 380,000 tonnes per month,having registered a modest surplussince Q2-2009. However, the largesttrade deficit is for semis: it stood at

630,000 tonnes per month in Q1-2011.

As far as the main export destinationsfor long products are concerned,Algeria remained by far the largest

single country of destination,accounting for almost 60% of rebarsexports and significant volumes inother long products.The latest forecasts from EUROFERsEconomic Committee show EU steelexports in 2011 stabilising around theyear earlier level due to thestrengthening of the Euro against theUS$ and the negative impact ofgeopolitical unrest on demand for steel

products in the Middle East and NorthAfrica (MENA).In 2012, EU steel exporters may seean improvement in sales opportunitiesabroad as the drag from the Eurofades and demand from customers inthe Middle East and North Africa ispartly restored.


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Changes in %IMPORTS

Third CountriesEXPORTS

Third CountriesDELIVERIESinto EU 27

TOTALDELIVERIES

Year 2010 29.7 5.6 20.8 18.2

Q.1/2011 41.0 -4.6 12.7 9.0

FORECAST

Q.2/2011 28.7 -5.7 -1.4 -1.6

Q.3/2011 19.2 -1.1 4.0 3.6

Q.4/2011 16.0 9.4 5.9 6.8

Year 2011 26.0 -0.7 5.2 4.4

Q.1/2012 5.2 23.0 0.0 3.0

Q.2/2012 0.2 14.7 8.1 8.8

Q.3/2012 3.1 11.7 5.9 6.8

Q.4/2012 2.4 8.5 2.6 3.7

Year 2012 2.7 14.3 4.0 5.5

market report june

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