Steel Financial Bulletin Shows European Producers in Lead for 2007 Margins
08/27/2007 - The latest edition of Steel Financial Bulletin from Integer Research reveals that European steel producers have reported record profits in 2007, while margins in the U.S. steel market have fallen.
Steel Financial Bulletin—the latest publication from Integer Research—reveals that European steel producers have reported record profits in 2007, while margins in the U.S. steel market have fallen.
“Global demand and prices for steel remain at historic levels into 2007,” said Integer Research Director, Philip Radbourne. “For example, some European companies—SSAB, Salzgitter, and voestalpine—have shown record operating and net profit margins in 2007. This is due to the strong positive global economic trend that has persisted into 2007.”
“However, as can be seen in the Steel Financial Bulletin, it was not as easy for the Asian and U.S. producers,” said Integer Research analyst, Andrea Valentini. “In the U.S., the economic momentum has slowed, triggered by the crisis in the U.S. real estate market. The softer U.S. economy meant that stocks have built up, particularly of flat steel sheet. Consequently, margins for companies like Nucor and AK Steel have fallen. Margins had also been squeezed by imports and prices; however imports have recently dropped, leading to a healthier business environment. This has resulted in a stronger performance in the U.S. steel market in Q2 2007.”
Steel Financial Bulletin, which gathers quarterly and interim financials for 60 leading global steel producers, also shows that profitability in Asia has been strongly tied to the production of quality flat products (China) and global car sales (Japan).
“In China, the cost pressure among some players, and pressure on prices, hit margins for many of the steel producers early in 2007,” continued Radbourne. “This was despite the continued strong demand. The only companies that have been able to sustain their profitability are those producing quality flat products, such as Angang, Tangshan, and Shougang. They have been able to sustain their profit margins because strong economic performance in China. This has underpinned demand for flat steel products used in a range of consumer goods.”
In Japan, Nippon Steel Corp. and JFE Holdings Inc have both been able to post strong quarterly profits margins, helped by higher steel prices. Nippon Steel, the world's second-largest steel producer has benefited from strong worldwide sales of Japanese cars, helping its pre-tax profit increase by 21% year-on-year to Yen148.7 billion (US$1.26 billion). JFE sold nearly half its steel products to customers in South Korea, Thailand, and China. In contrast Sumitomo Metal Industries and Kobe Steel—both of which are less connected to the booming car sheet production—have seen their margins squeezed over the last few months.
“South Korea's Posco announced a 55% increase in its quarterly net profits in Q2 2007, as it saw rising demand from car companies and shipbuilders,” says Radbourne. “Arcelor Mittal also reported a strong performance. It saw a 50% increase year-on-year in net profits, based on its pro-forma 2006 results. However, it will be interesting to see how Arcelor Mittal performs, once we are able to look at the company on a like-for-like basis through next year. It will also be interesting to see, in future editions of the Financial Bulletin, whether the company has been able to gain from consolidation.”
SOURCE: Integer Research Ltd.
