Чехия – 2010 – Металлургическая промышленность
Чехія – 2010 – Металургійна промисловість (анг.)
Current Development in the Czech Metallurgical Industry
Miroslav Svoboda, Hutnictví železa a.s., e-mail: email@example.com, www.hz.cz
The impact of the economic crisis on the metallurgical industry was fully felt in 2009. The slower rate of growth and lower demand in the decisive consumer branches, which were already seen in the 4th quarter of 2008, continued with even greater intensity. The volume of new orders declined by nearly 40% on a year-on-year basis. A problem for exporters throughout the whole period under review was the considerable volatility of the Czech crown in relation to the Euro and the Dollar. All these factors taken together resulted in a record 68% year-on-year decline in added value and marked reduction of the overall cost-effectiveness of production. A turn occurred in 2010. While in the 1st quarter of 2010 the volume of new orders grew by +2.2% year-on-year, in the 2nd quarter it rose by 58.7%, nearly reaching the level of the 1st quarter of 2009.
In 2009, the industrial production index (IPI) in the sector declined by 24% year-on-year on an average (total industry -13.1%). In the first half of 2010 the sector resumed its upward trend with IPI in the first quarter rising by 25% and in the second quarter by as much as 42.4%. For comparison, total IPI in that period rose by 7.5% and 12.3% respectively, year-on-year.
A similar trend was shown by final metallurgical production, which in the 1st quarter of 2010 rose by 36.4% year-on-year, of which rolled material by 34.6% and steel tubes by 38.4%. Final production deliveries to the domestic and foreign markets in the 1st half of 2010 rose by 37% on a year-on-year basis. A survey of traders and buyers revealed that stocks of previous years would be exhausted by the end of 2010 and a marked increase in demand for steel was only to be expected in 2011.
For reasons of high stocks on the part of traders and consumers, the decline in consumption manifested itself much more distinctly in apparent consumption (supplies + imports – exports), where the year-on-year decline in 2009 was 30.8%, than in real consumption (-20.8%). In the following period, i.e. in 2010 and especially 2011, a reverse trend is expected as a result of the replenishment of stocks, and the same growth rate could be achieved in the course of 2012.
Considering the high proportion of Czech exports, the country’s export possibilities are closely linked with the economic revival or recession in the world, in particular the European Union. EU industrial production in 2010 is expected to grow by 6.8% (following a 14% decline in 2009), mainly thanks to the revival in engineering, including car production and metalworking. In the building industry, the decline is expected to continue (-1.4%).
Slight Revival on the Part of Buyers
The situation is quite favourable in the steelusing industries (SWIP), too. In 2009, the year-on-year decline in the sector amounted to 18.9%, but in 2010 a moderate growth of 3.7% is expected. A marked growth was recorded by the automotive industry, mainly owing to the extremely low 2009 level, but also a massive growth in orders from third countries (China, India, Japan, and other states). The situation on the EU internal market continues to be unfavourable. This, together with the expected slower growth in third countries and their lower imports in the 2nd half of the year, will not allow the estimated growth of SWIP in 2010 to exceed 3.7%. This trend is expected to continue with only a very moderate growth being anticipated for 2011 (+3.4%). The economic slowdown is also responsible for the massive decline in the real consumption of steel products in Europe. While in the whole of 2008 real consumption dropped by 7% year-on-year on an average, the decline in 2009 was nearly 23%. The decline accelerated especially in the 1st half of 2009 in connection with a rapid drop in demand on the part of the main buyers and high stocks in the entire production chain. The estimated growth of real consumption in Europe will be only very moderate in 2010 and in 2011 the real consumption level, too, will be still below the values recorded at the beginning of the millennium.
Linking up to EU Markets
In comparison with the old EU member states, the impact of the recession was more strongly felt in the Czech Republic in year-on-year comparisons, mainly due to the size of the Czech domestic market and the rate of involvement of the Czech economy in the international division of labour. This manifested itself by cuts in orders in the manufacturing industry, which in turn caused a decline in steel production.
Cutback on Prices
The decline in steel production in 2009 was accompanied by a year-on-year decline in the prices of steel products. This was due to cuts in demand in a situation where manufacturers drew on their excessive stocks in the entire steel-using industries complex. The decline in steel product prices was also made possible by the lower prices of raw material inputs. In comparison with 2008, in 2009 world scrap metal prices dropped by 37% year-on-year, with thermal coal prices also declining massively (-44%) and the prices of natural gas falling by 33% and iron ore by 28%. Electricity prices were stagnant.
A different development could be observed in 2010, when rising raw material prices put pressure to bear on steel product prices. In the 1st half, thermal coal prices rose by 40.4% year-on-year, the price of iron ore by 32.7%, and that of scrap metal by 60.6%. Only natural gas prices declined, by 30% year-on-year, in the period under review.
Revenues Are Going Up
In 2009, revenues in current prices in the steel companies under review declined by 38.7% year-on-year. In the 1st half of 2010 the trend was more favourable, with revenues rising by 10.8%, yet staying distinctly below the level of the 1st half of 2008 (by nearly 40%), despite massive growth of the physical amounts of production in 2010. There are two reasons for this situation: the above-mentioned year-on-year decline in prices (-10%) and the strengthening of the Czech crown (in relation to the Euro by approximately CZK 2/EUR year-on-year on average) with a much higher proportion of deliveries to foreign markets. The faster growth of revenues in comparison with the growth of consumption from operation was mainly due to the development in the 2nd quarter of the year, when added value grew by 37.6%.
Profitability has also Reversed Its Trend
The gradual growth of added value also became projected into profitability indicators. The profit and loss result before tax was CZK +972 million as against CZK -2.4 billion in the comparable period of 2009. Profitability of revenue in the period under review amounted to 2.4% as against -5.9% in the first half of 2009. Own capital profitability indicators showed positive values in comparison with 2009. The successful economic development of most companies in past years also added to the growth of the share of the companies’ own capital to the average value of 69% of total assets. While total liabilities, including credits (total credits declined by 42% year-on-year), were growing year-on-year, overall credit indebtedness, too, declined (also by 42%). This can be partly explained by reduced credit availability and lesser need for operating financing. From the point of view of the companies’ capability of meeting their short-term liabilities, the situation worsened in terms of year-on-year comparisons, with current liquidity declining by 45% year-on-year. While production showed a revival in comparison with the 1st half of 2009, stocks grew by 20% year-on-year. This, together with the more moderate growth of revenues, resulted in the prolongation of stock rotation by 7%. The shortening of repayment terms and asset rotation periods is valued positively.
Deliveries and Orders Growing
Despite the considerably different economic situation of companies, the development in the 1st half of 2010 can be valued rather positively. Deliveries are growing and so is the volume of orders, although neither has as yet reached the 2008 pre-crisis level. The development is showing a favourable trend especially in Germany, while on the other hand the budgetary problems of the EU southern wing and the austerity measures that have been adopted may slow down the economic revival process in Europe (to a lesser extent also in the CR). Thanks to the previous development, the financial situation of most companies is on a level ensuring their functioning. Companies continue to be in a position to meet their obligations. Their cash-flow is growing, while the repayment periods of their debts are shortening. The shortage of orders in the past period necessitated the closing down of production facilities and making wage cuts, whether by way of shortening the working week or by decreasing the number of workers. Capacity utilisation in the entire technological chain and the productivity of labour continue to be low, despite the year-on-year growth. In spite of this, most of the indicators under review are showing an improvement in comparison with the results from 2009.
The decline in revenues and orders, which accelerated especially in the first half of 2009, also had an impact on the productivity of labour and necessitated a corresponding reduction in the area of employment. During the 1st half of 2010, the average registered number of workers (excluding agency workers) declined by 10.1% year-on-year and practically remained on that level. Cuts in employment prompted by the lower volume of confirmed orders also resulted in greater wage savings. In the 1st half of 2010, wage payments dropped by 6.5% year-on-year. The result was a year-on-year 4% growth of average earnings, which followed a decline in average earnings in 2009. In the 1st half of 2010, productivity of labour derived from revenues rose by 24.3% year-on-year, which corresponds to the growth of revenues (orders), and is the consequence of labour cuts. In absolute terms, however, productivity is far below the 2008 level.
The level of the productivity of labour also limits the growth of earnings in companies. So, live labour substitution (wage saving) is becoming an important instrument of attaining the price competitiveness of products of comparable quality and use value. Aware of this fact, companies have resorted to major labour cuts, even at the cost of high payoffs.
The chart on p. 7 shows that beginning with 2002, the growth of the productivity of labour exceeded the growth of average earnings, with the greatest difference being achieved in 2004, when, however, the record revenues were due, to a considerable extent, to high year-on-year price rises. It should be noted that since 2007 the growth of productivity and revenues has not been exclusively a matter of labour cuts, but has been increasingly due to rationalisation measures and a changed structure of workers in favour of the higher qualification of the labour force. This manifests itself by greater differentiation between the wage and productivity of labour rates of growth/decline.
In the 1st half of 2010, production and orders grew at a faster rate in comparison with the same period in the previous year. Nevertheless, the pre-crisis level of production, and especially revenues, was not attained, and its attainment cannot be expected in the latter part of the year either. In particular, demand from domestic manufacturers remains low. Most important for further development will be a revival, especially in Europe, to which the decisive proportion of the output is directed. This may be negatively affected by the austerity programmes of other countries, provoked by previous massive investments to stimulate economic growth. From the global point of view, the most important thing for finding outlets for metallurgical materials is the economic development in China and consolidation of the US economy.
Other Requirements and Financing Possibilities
The development of the steel industry in Europe and the CR is closely linked with the development of the countries’ business environment and their legislation. Countries use important legislative measures in the area of ecology and the environment, where certain laws and regulations that are being adopted may some time in future lead to the loss of competitiveness among European manufacturers. Examples of this are the proposed emission permit trading systems, environmental legislation for the atmosphere, etc. It is unacceptable for environmental legislation not to affect all pollution sources (industry, local, and mobile sources) evenly and to discriminate against industry. The central point for the steel industry in future is to realise specific actions eliminating unfavourable impacts on the environment. These investments (prepared projects) cannot be realised exclusively with the industrial enterprises’ own resources; they will need money from the State Environmental Fund created with revenues from permit trading, from the Environment Operational Programme, and from EU structural funds. An indispensable condition of development of the metallurgical industry is also the realisation of research, development, and innovation projects. The use of resources from Operational Programmes and co-financing with support from European funds is a way to sustainable living conditions.
Supplemet of Czech Business and Trade 1-2/2011