The French steel industry looks set for a disappointing performance in H211, leading to a contraction in the sector as it struggled to compete and key consuming industries were met with economic headwinds, according to this latest France Metals Report.
In the first eight months of 2011, French crude steel output rose 2.3% year-on-year (y-o-y) to 10.6mn tonnes, according to the French Steel Federation (FFA). The results were improved by a 15.6% y-o-y increase in electric arc furnace (EAF) output to 4.05mn tonnes, which outweighed a 4.5% drop in blast furnace output to 6.56mn tonnes. However, FFA figures are markedly different from World Steel Association (WSA) data, which showed a 2.1% drop in output in the first seven months of the year. Even allowing for the 1.03mn tonnes the FFA reported for August, the two sets of figures portray a markedly different scenario.
Bearing in mind the trends in the WSA data, our forecast model suggests that the sector will experience a 0.1% decline in crude output. This will mean that the industry will be operating at 20% below the levels seen before 2008. ArcelorMittal's management planned to close the second blast furnace site Florange from October 2011 in response to sluggish growth in European steel consumption and over-capacity. The company also anticipated lower demand in H211. It is unlikely that either plant at the site will resume operations until 2012. This is set to cause a moderation and possible decline in output over H211 and into 2012.
By 2015, crude and hot-rolled output should reach 16.73mn tonnes and 15.16mn tonnes respectively, still well down on pre-recession level. Aluminium should fare better, helped in part by its use in lighter and more fuel-efficient vehicles. By 2015, aluminium production should have recovered to 2008 levels, provided there is no closure of capacity. The French steel industry will undergo the same process of 'delocalisation' as other industrial sectors. In the longer term, however, we believe French production remains susceptible to production erosion, if not complete factory closures. Over time, we expect carmakers to be more inclined to boost production overseas and gradually reduce production domestically, meaning that a full recovery in auto production may be difficult to attain and therefore holding back consumption levels.
Finished steel consumption is set to grow 5.2% to 15.19mn tonnes in 2011, with French steelmakers losing market share at home partly due to the deterioration in competitiveness, particularly in metal structures. The automotive industry, led by growth in emerging markets and new opportunities in energy and sustainable development, is driving demand. However, the construction industry continues to underperform, affecting flat steel. Metals have benefited from industrial demand and consumer goods in all market sectors - automotive, electronics and consumer goods.
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