UPDATE 2-Weak Steel Demand Weighs Heavy on Rautaruukki-Shanghai Metals Market

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UPDATE 2-Weak Steel Demand Weighs Heavy on Rautaruukki

Industry News 09:41:00AM Oct 20, 2011 Source:SMM

HELSINKI, Oct. 19 (Reuters) -- Finnish steelmaker Rautaruukki reported a bigger-than-expected fall in third-quarter operating profit as the European debt crisis hit growth in steel demand, especially from higher-volume industrial users.

It said July-September operating profit excluding one-off items was just 1 million euros ($1.4 million), down from 41 million a year ago and missing an average forecast for 20.7 million in a Reuters poll.

The estimates ranged from a loss of 31 million euros to a profit of 41 million.

Rautaruukki had cut guidance this month, trimming its sales forecast for the year because of economic turmoil in the euro zone, and warned improvements in profitability would be less clear than it had hoped, echoing European peers.

But Wednesday's news hit shares in the group, which makes specialist steel products, and supplies components and systems to the construction and mechanical engineering industries, largely in Europe. The stock was down 8.7 percent at 1451 GMT.

"The profit was soft, cash flow relatively weak and sales mix in the steel business pointed to the wrong direction," Handelsbanken analyst Mikael Doepel said. "This is how it is with steel companies -- results might fluctuate considerably."

Order intake continued to rise, 18 percent in the quarter, thanks to growth in construction and engineering units in Finland, Poland and Russia, but analysts said that could slow in the coming quarter.

The metals division, the only arm to make a profit last year, saw sales tick higher, but posted a loss of 9 million euros against a profit of 51 million a year ago.

Its construction and engineering units reported small profits for the quarter.

Rautaruukki said the metals arm had been hit by a drop in deliveries as customers became less confident, and by higher raw materials costs and lower capacity utilisation.

"Growth levelled off in steel markets mostly because of the uncertainty in financial markets in Europe, and cautious decision-making due to the weakened economic outlook," Chief Executive Sakari Tamminen said in a statement on Wednesday.

He said lower demand for steel was visible especially in so-called direct mill deliveries to major steel consumers, while orders for short-term needs remained good.

Rautaruukki delivers steel directly from its Raahe mill to large customers such as engineering firms, shipmakers or wholesalers, whereas smaller users including construction firms needing a small amount of steel for a new roof will purchase it from Rautaruukki's distribution centres.

Rautaruukki said production capacity in European steel markets had been adjusted "throughout the line", with its own operations running at an estimated 80 percent of capacity in the fourth quarter, weakening profitability.

It confirmed and expectation for 2011 sales to grow 15-20 percent and profitability to improve versus 2010.

Tata Steel, the second-largest steel producer in Europe, said last week it could cut output further if order books weaken, and European steelmakers including Sweden's SSAB and ThyssenKrupp have announced production cuts in the face of waning demand.

But cautious comments from steelmakers have contrasted with bullish production reports from major miners, which continue growing iron ore and coking coal production despite weaker prices.

BHP Billiton, which exports mostly to China rather than Europe, reported on Wednesday a 24 percent jump in iron ore production in the September quarter.
 

UPDATE 2-Weak Steel Demand Weighs Heavy on Rautaruukki

Industry News 09:41:00AM Oct 20, 2011 Source:SMM

HELSINKI, Oct. 19 (Reuters) -- Finnish steelmaker Rautaruukki reported a bigger-than-expected fall in third-quarter operating profit as the European debt crisis hit growth in steel demand, especially from higher-volume industrial users.

It said July-September operating profit excluding one-off items was just 1 million euros ($1.4 million), down from 41 million a year ago and missing an average forecast for 20.7 million in a Reuters poll.

The estimates ranged from a loss of 31 million euros to a profit of 41 million.

Rautaruukki had cut guidance this month, trimming its sales forecast for the year because of economic turmoil in the euro zone, and warned improvements in profitability would be less clear than it had hoped, echoing European peers.

But Wednesday's news hit shares in the group, which makes specialist steel products, and supplies components and systems to the construction and mechanical engineering industries, largely in Europe. The stock was down 8.7 percent at 1451 GMT.

"The profit was soft, cash flow relatively weak and sales mix in the steel business pointed to the wrong direction," Handelsbanken analyst Mikael Doepel said. "This is how it is with steel companies -- results might fluctuate considerably."

Order intake continued to rise, 18 percent in the quarter, thanks to growth in construction and engineering units in Finland, Poland and Russia, but analysts said that could slow in the coming quarter.

The metals division, the only arm to make a profit last year, saw sales tick higher, but posted a loss of 9 million euros against a profit of 51 million a year ago.

Its construction and engineering units reported small profits for the quarter.

Rautaruukki said the metals arm had been hit by a drop in deliveries as customers became less confident, and by higher raw materials costs and lower capacity utilisation.

"Growth levelled off in steel markets mostly because of the uncertainty in financial markets in Europe, and cautious decision-making due to the weakened economic outlook," Chief Executive Sakari Tamminen said in a statement on Wednesday.

He said lower demand for steel was visible especially in so-called direct mill deliveries to major steel consumers, while orders for short-term needs remained good.

Rautaruukki delivers steel directly from its Raahe mill to large customers such as engineering firms, shipmakers or wholesalers, whereas smaller users including construction firms needing a small amount of steel for a new roof will purchase it from Rautaruukki's distribution centres.

Rautaruukki said production capacity in European steel markets had been adjusted "throughout the line", with its own operations running at an estimated 80 percent of capacity in the fourth quarter, weakening profitability.

It confirmed and expectation for 2011 sales to grow 15-20 percent and profitability to improve versus 2010.

Tata Steel, the second-largest steel producer in Europe, said last week it could cut output further if order books weaken, and European steelmakers including Sweden's SSAB and ThyssenKrupp have announced production cuts in the face of waning demand.

But cautious comments from steelmakers have contrasted with bullish production reports from major miners, which continue growing iron ore and coking coal production despite weaker prices.

BHP Billiton, which exports mostly to China rather than Europe, reported on Wednesday a 24 percent jump in iron ore production in the September quarter.