European economic & steel demand outlookMetal Expert Conference, Stresa, Italy
Terrence Busuttil, 8-9 April 2013
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Global macroeconomic outlook
Medium term steel demand drivers
Short term macro outlook
Steel using sectors
Steel demand outlook
3
Item 1
Moderate recovery expected in 2013
Advanced economies to remain weak with similar growth as 2012
Developing economies to grow 4.9% in 2013 from 4.7% in 2012
Source: Global Insight, March 2013
4
Global GDP developments (%, real 2005 USD billions)
2009 2011 2012 2013 2014
EU27 -4.3 1.6 -0.3 0.0 0.8Germany -5.1 3.1 0.9 1.0 1.4France -3.1 1.7 0.0 -0.2 0.5Italy -5.5 0.6 -2.4 -1.7 -0.4Spain -3.7 0.4 -1.4 -1.6 -0.6
Turkey -4.8 8.5 2.5 4.0 4.0MENA 1.7 2.6 3.6 2.6 3.8NAFTA -3.2 2.0 2.3 1.9 3.0
Global -1.9 3.0 2.6 2.6 3.5
Global macroeconomic outlook
Medium term steel demand drivers
Short term macro outlook
Steel using sectors
Steel demand outlook
5
Item 2
Consumer deleveraging progressing in USA but only starting in Europe
Deleveraging in Germany & USA to support consumption in 2013 Disposable incomes under pressure in Italy, Portugal and Spain making
deleveraging difficult and contributing to falling consumption in 2013
Consumer debt (% of disposable income)
Note: Germany, USA & Japan peaked in 2007Source: Haver Analytics
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Italy Greece Portugal Spain France Germany USA Japan
2000 43 27 98 77 68 109 90 1322007 66 70 136 135 89 96 125 1352008 66 77 140 134 89 93 122 1332009 71 78 143 133 94 93 123 1312010 73 91 141 137 99 91 115 1302011 74 NA 142 136 100 88 109 129
Change in consumer debt ratio (% of disposable income)2000-2007 23 43 38 58 21 -13 35 32007-2011 8 NA 6 1 11 -8 -16 -6
Public sector deleveraging in S.Europe to continue
Contracting GDP in S.Europe implies greater expenditures cuts and/or increasing taxes
Fiscal balance (% of GDP) Change in fiscal balance to GDP (points)
Source: Global insight March 2013
Note: positive change in fiscal tightening signals improving fiscal balance
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2011 2012 2013 2014 2011 2012 2013 2014
Germany -0.8 0.2 -0.1 -0.3 3.4 0.9 -0.3 -0.2
France -5.2 -4.7 -3.9 -3.0 1.9 0.5 0.8 0.9
Italy -3.9 -3.0 -2.4 -1.8 0.7 0.9 0.6 0.6
Spain -9.4 -6.7 -6.1 -4.8 0.3 2.7 0.6 1.3
MENA 3.8 4.6 2.8 0.6 3.8 0.8 -1.9 -2.2
Turkey -1.4 -2.0 -2.3 -2.5 -1.4 -0.6 -0.3 -0.1
USA -9.0 -7.6 -5.9 -4.7 0.4 1.4 1.7 1.2
Contracting output makes deleveraging challenging in Europe
EU27 unemployment rate has risen by 3.9 points from the lowest point in 2008Q1 and average real GDP declined -0.35% per quarter
Eurozone: Annualized real GDP vs. unemployment rate (%, SA)
USA: Annualized real GDP vs. unemployment rate (%, SA)
Source: Haver Analytics
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-9%-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
Real GDP
Unemployment rate (RHS)
-9%
-8%
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
Real GDP
Unemployment (RHS)
But reforms supporting cost competitiveness in S.Europe
Cyclical fall in demand and structural reforms support falling unit labour costs in Greece, Portugal and Spain but weak reforms in Italy undermine productivity growth
Unit labour costs* (4-quarter average, SA, 2000 = 100)
Note: *Defined as nominal compensation of employees per unit of real GDP
Source: Haver Analytics
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Current account balance (4-qtr moving average, billions of euro)
2002-
Q420
03-Q2
2003-
Q420
04-Q2
2004-
Q420
05-Q2
2005-
Q420
06-Q2
2006-
Q420
07-Q2
2007-
Q420
08-Q2
2008-
Q420
09-Q2
2009-
Q420
10-Q2
2010-
Q420
11-Q2
2011-
Q420
12-Q2
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
S.Europe
N.Europe
Consumption
Sharp contraction in S.Europe retail sales volume but N.Europe sales generally elevated
Deleveraging underpins fall in S.Europe retail sales
Europe (3 month average, SA, 2005=100)
Note: N.Europe: Austria+Belgium+France+Germany; S.Europe: Portugal+Greece+Spain+Italy
Source: Haver Analytics
USA (2007=100, SA)
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Investment
Falling capacity utilization in S.Europe postpones need for machinery & equipment investment; negative sentiment spills over into N.Europe
Europe (%, SA)
Source: Haver Analytics
Note: European capacity utilization weighted by real GDP
Contracting domestic demand reduces the need for additional investment
USA (%, SA)
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Falling business credit in S.Europe reflects falling supply and demand but credit generally supportive in N.Europe
The European Central Bank has ensured the provision of liquidity to solvent banks but uncertainty curtails credit supply while contracting domestic output reduces loan demand
Europe: Corporate credit (billions of euro, NSA)
Source: Haver Analytics
US: Commercial & industrial loans (%, y-o-y)
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Global macroeconomic outlook
Medium term steel demand drivers
Short term macro outlook
Steel using sectors
Steel demand outlook
15
Item 3
Indicators point towards an easing of the recession
Eurozone PMI still contacting but rate of decline easing; German IFO averages 106.1 in Q1’2013 from 101.4 in Q4’2012
Manufacturing output (2005=100, SA, 3 month average)
Eurozone: manufacturing output vs. Purchasing Managers Index (>50=expansion)
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Source: Haver Analytics
Global macroeconomic outlook
Medium term steel demand drivers
Short term macro outlook
Steel using sectors
Steel demand outlook
17
Agenda item 4
Steel using sectors in Europe still contracting
Car sales (3 month average, SA, annualised)
Southern European auto sales down 2 mn units from 2006; modest fall in in Northern Europe. In 2012 sales were down 8.5%; further decline in 2013
Source: Haver Analytics
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Construction output (2005=100, SA)
Global macroeconomic outlook
Medium term steel demand drivers
Short term macro outlook
Steel using sectors
Steel demand outlook
19
Item 5
EU27 demand to remain below peak levels
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Apparent steel use (finished, 2007=100)
Source: worldsteel Short Range Outlook April 2013
*EU27 less Italy & Spain
And declining as a share of global apparent steel use
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Apparent steel use (finished, 2007=100)
Source: worldsteel Short Range Outlook April 2013
EU27 share of global ASU falls to under 10% from under 30% in 1975
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 (f)
0.0
200000.0
400000.0
600000.0
800000.0
1000000.0
1200000.0
1400000.0
1600000.0
5%
10%
15%
20%
25%
30%
EU27 share of Global ASU (RHS) Global ASU
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Regional trade flows (net-exports, Mt)
Encouraging EU27 producers to seek export markets
Source: worldsteel; MENA includes intra-trade flows
EU27 remained a net-exporter of steel for the fourth straight year in 2012 EU27 steel exports increased to 26% of apparent steel use in 2012 from 15%
in 2007
2007 2008 2009 2010 2011 2012
EU27 -10.3 -0.5 11.8 9.5 3.0 10.8
MENA -35.9 -43.1 -44.5 -41.1 -42.3 -44.3
CIS 49.8 48.1 45.8 44.8 41.4 40.0
Turkey 1.9 5.3 7.2 5.5 6.7 7.2NAFTA -29.8 -25.8 -17.8 -25.1 -19.8 -24.9
With exports also supported by weaker euro
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Trade weighted value of the euro (2005=100)
Falling value of the euro also supports exports
Source: Haver Analytics
And apparent steel use growth in emerging markets
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Apparent steel use (% year-on-year, finished)
North Africa sees increased share of EU27 steel exports
Continued emerging market growth will incentivize EU producers to search for
new markets in the presence of weak domestic demand.
Source: worldsteel
2007 2008 2009 2010 2011 2012 2013(f)
Average
(2007-13)% of 2007
EU27 5.4 -7.8 -34.9 21.0 6.8 -9.3 -0.5 -2.7 -29.9NAFTA -8.5 -7.9 -36.0 33.2 9.4 7.8 2.9 0.1 -4.7Turkey 12.0 -9.7 -16.0 30.7 14.3 5.7 7.5 6.4 28.7MENA 22.5 8.1 0.3 3.6 1.4 2.2 3.2 5.9 20.2ASIA 9.5 4.1 9.2 9.6 7.3 1.8 3.2 6.4 40.5
Conclusions
Global apparent steel use to reach a new record in 2013 as developing markets remain key growth drivers at the margin
Domestic demand in Europe to remain weak as deleveraging to weigh negatively on apparent steel use
European steel demand expected to continue contracting in 2013 against the backdrop of declining steel using sectors. Pickup expected in 2014
Against the backdrop of contacting domestic demand, European producers will continue seeking growing export markets
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