--Steelmakers hit by construction slump in southern Europe
--Earnings decline sharply in the second quarter
--Order intake muted, but some signs of hope for coming
months
FRANKFURT--European steelmakers see muted business prospects
after sharply falling earnings in the second quarter, damped by the
sovereign debt crisis and slowing demand from China.
ArcelorMittal (MT), ThyssenKrupp AG (TKA.XE) and most recently
Salzgitter AG (SZG.XE) have reported that conditions, including a
construction slowdown in southern Europe, weighed on
performance.
"The weak economic situation and in particular the general
uncertainty resulting from the unresolved sovereign debt crisis are
increasingly impacting our markets," said ThyssenKrupp Chief
Executive Heinrich Hiesinger.
ArcelorMittal's chief executive made similar remarks. "The
global economy remains fragile," said Lakshmi Mittal, and "the
situation in Europe and its potential impact on other markets
remains the biggest concern."
The world's largest steelmaker cut its forecast for global
apparent steel demand to a 3.5% to 4% rise this year, down from its
earlier prediction of a 4% to 4.5% increase. ArcelorMittal now sees
a 3% to 5% contraction in Europe as construction demand in the
highly indebted south of the continent remains depressed.
The Luxembourg-based company has also cut its forecast for
Chinese steel consumption, but has become more optimistic for U.S.
demand due to recovering residential construction.
The weak demand weighed on sector earnings. ArcelorMittal's
second-quarter net profit fell 38% on the year, prompting Standard
& Poor's to cut the company's credit rating below investment
grade. Tuesday, Salzgitter said it swung to a net loss.
Customers were reluctant to place orders amid economic
uncertainty, boding ill for the coming months. ThyssenKrupp's order
intake declined 21% on the year, "somewhat concerning" and implying
weak revenue in the next quarter, according to Warburg Research
analyst Bjoern Voss.
The situation has been deteriorating over time, reported
Salzgitter. "The willingness of many steel customers to place
orders weakened rapidly in the face of deteriorating economic
conditions' at the end of the second quarter, and "implementing the
selling price increases so urgently needed was therefore not
possible," said the company.
While there are few real indicators pointing to an overall
recovery for the sector, some managers and analysts retain hope for
improvement in the coming months.
Mr. Mittal said demand from China, the world's largest
steel-consuming nation, should pick up in the second half of the
year as the government takes steps to stimulate the economy through
investments in railway infrastructure among other things.
Morgan Stanley in a recent research report also noted signs of a
demand recovery in China and pointed to a rebound in property
sales, rising spending on infrastructure investments and surging
car sales.
Salzgitter has hopes also for Europe. As orders have been very
low recently, it "appears feasible that the fall may bring a
recovery in demand and the implementation of urgently needed price
increases," said the company.
JPMorgan analyst Alessandro Abate confirmed this view, saying
"the global steel price trend is shaping up."
The devaluation of the euro against major currencies is also
helping, said Salzgitter. And regarding earnings, not only selling
price increases but also declining raw materials prices might help
margins, said the company.
Write to Friedrich Geiger at friedrich.geiger@dowjones.com
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