By Christiaan Hetzner
FRANKFURT, Oct 4 (Reuters) – The top executive at ThyssenKrupp’s (TKAG.DE: Quote, Profile, Research, Stock Buzz) core steelmaking division expressed confidence that emerging markets would keep the steel boom alive next year even as economic growth slows.
“We are confident. The optimism is based on the continued favorable outlook for the global steel markets,” ThyssenKrupp Steel Chief Executive Karl-Ulrich Koehler said in a speech on Saturday in Washington, DC.
“In particular, demand from Asia, Latin America, the Near East and the Commonwealth of Independent States will increase at an above-average rate in the coming years and considerably influence the world market,” he continued.
His bullish comments were the first to emerge in the run up to the annual congress of the IISI global steel federation, a key event that starts next week in the U.S. capital.
This could soothe investors who have sold off European steel stocks recently, afraid that steel demand will slump with economies slowing as a result of the crisis on Wall Street.
“Steel equities are pricing in a total collapse in the steel price … the Aug.-Sept. performance has so far been the worst in 35 years,” wrote analysts at Credit Suisse in a recent report.
Industry leader ArcelorMittal (ISPA.AS: Quote, Profile, Research, Stock Buzz)(MT.N: Quote, Profile, Research, Stock Buzz) fed these fears after it said in mid-September that it was prepared to cut production by up to 15 percent to maintain steel prices.
Koehler, whose steel division supplies high quality flat steel products like hot rolled coils (HRC) to customers in the automotive and white goods industries, said his business in the fiscal year ended in September 2008 would not match the record pretax profit seen prior-year.
“Operationally we will remain roughly on par with the previous year’s level,” he said, blaming the shortfall on start-up costs for its planned increase in production capacity as well as restructuring expenses at its Metal Forming unit.
Koehler said there were no further construction delays for its slab mill in Brazil and processing plant in the U.S. state of Alabama, nor did either project go any further over budget.
He also reaffirmed his parent group’s full fiscal year forecast for revenue of around 53 billion euros ($73.45 billion) and earnings of more than 3.2 billion before tax and major non-recurring items.
The ThyssenKrupp executive said IISI’s autumn forecast shows world crude steel output would clearly exceed 1.4 billion tonnes this year, exceeding last year’s record 1.344 billion.
Shipments of the company’s own rolled steel grew 1.5 percent to a record 14.3 million tonnes in 2007/08, yet ThyssenKrupp Steel could still not meet fully meet customer demand.
A commodities boom meant a surge in prices for energy and raw materials like iron ore, coking coal and steel scrap led to over 1 billion euros in added production costs for his business.
This represented a share of 73 percent of the overall cost to produce one tonne of HRC in its final fiscal quarter.
With just over 60 percent of its revenue last year generated by delivery contracts with durations of at least one year effective usually at the start of January, ThyssenKrupp Steel succeeded in adjusting these contracts to better coincide with its annual renegotiations with mining groups like Vale (RIO.N: Quote, Profile, Research, Stock Buzz).
“They now are oriented on contracts that we agree on with our raw material suppliers in order to allow us to react in a timely manner to changing raw material prices,” he said.
The multi-national mining conglomerates like BHP Billiton BHP.L, Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) and Vale often reach pilot agreements with the steelmakers that apply world-wide starting every April.
For spot and quarterly contracts that represent 9 and 19 percent of ThyssenKrupp Steel’s business, respectively, Koehler hiked prices in October by an amount he did not quantify.
Koehler also called on the EU to exempt the company fully from paying for carbon emission rights that he said would burden it with up to 1 billion euros in added costs were it to pay for example 50 euros for every tonne of steel produced.
“An international benchmark of energy efficiency shows ThyssenKrupp Steel is the best, so we demand free emission rights,” he said, explaining that its CO2 output during production sank by 15 percent since 1990.
© Thomson Reuters 2008.