Day: 14 May 2020

Germany’s mechanical engineering industry is continuing to feel the effects of the Covid 19 pandemic Some signs of improvement however are also being seen, according to the results of the latest survey by its trade association VDMA.

In the fourth poll of its type this year, 724 companies have participated, Kallanish understands. By mid-April, three-quarters of those surveyed had recorded a noticeable or serious fall in orders or cancellations, and by the beginning of May this figure had climbed to 85%.

The latest poll however promises some better news. While almost half of the companies still said that they had been noticeably affected on the supply side in mid-April, the figure is now just under four out of ten companies. “Many mechanical engineering companies report that the difficulties with supplies from China in particular are easing,” says chief economist Ralph Wiechers.

It is also encouraging that the assessment of developments over the next three months has brightened somewhat on both the demand and the supply side. In mid-April, 43% of companies expected the order situation to worsen. Now, only slightly more than 30% expected an increase of demand-side disturbance. Almost half of the companies polled however now expect the situation to remain tense for the next three months.

The companies are facing major problems due to travel and residence restrictions. As a tangible example, VDMA says that more than 80% of companies said that their employees are not allowed access to their customers’ premises as normal. In addition, 62% of customers delay or refuse acceptance of delivered machines, the poll shows.

Germany’s second-largest steelmaker, Salzgitter. said Wednesday it is expecting a difficult year, with maintaining liquidity the top priority because the demand outlook is gloomy, .

Salzgitter will limit new investment in light of a looming recession in end-user markets.

The company said in its first-quarter earnings report that the impact of the coronavirus pandemic would filter through in Q2 and hit the steel tubes industry in particular because low oil prices would result in less drilling and lower investment in the oil and gas industry.

“The stabilizing tendencies on the European steel market came to an abrupt end with the restrictions placed on the economy due to the COVID-19 pandemic,” Salzgitter said.

“European demand for steel has plunged as a result of the coronavirus pandemic,” the company said, adding that key customer sectors such as the automotive are facing an 80% drop.

Also the outlook for strip steel looks gloomy as order intake at Salzgitter’s strip steel unit dropped in the end of Q1 as customers canceled or postponed their orders.

The cancellations were however not reflected yet in Q1 results as production at the strip steel unit grew 4.7% year on year to 1.2 million mt as the start of the year was strong.

There was a similar development at the heavy plate and sections unit where order intake rose 11.3% on the year to 583,800 mt with a slowdown in orders from mid-March.

The stockholding of Salzgitter has been hit hard and wide margins in trading would be difficult to achieve said Salzgitter.

“Customer demand is also expected to slow significantly in the stockholding steel trade in the months ahead. Consequently, the widening of margins seen at the start of the year also seems unlikely to continue,” the earnings report said.

“We are limiting the economic impact of the pandemic through rigorous cost and liquidity management. We have adopted a restrictive approach to new investments,” the steelmaker said.

Ongoing projects such as the new hot-dip galvanizing line were going ahead as planned.

The steelmaker would continue to cut production for the time being.

Salzgitter said it would not be possible to make any projections for the business year, but said a pre-tax loss of hundreds of millions of euros was likely.

— Laura Varriale

European steel market participants are becoming concerned by the lack of new customer orders, sources told S&P Global Platts Wednesday.

One Italian service center manager said that order volumes in May were 60% lower than the seasonal normal but that this would gradually improve.

“Demand is very low and we are currently working the existing orders that were taken before the lockdowns, but this will improve day by day,” he said.

“What is the new ‘normal’ — nobody is able to understand this yet but customers were very optimistic last week and now they are worried by the lack of new business and feeling very negative.”

“We had hoped the return of the automotives would be positive and give some perspective for the steel market, but new car purchases will be zero, when will demand return?”

Demand for steel remains uncertain and public funded infrastructure projects would be one solution to create demand, jobs and restore confidence, the source said.

A German service center source was pessimistic about the recovery of automotive demand and said it could take a number of years to return to levels of 2017-18.

“German car sales have seen exports decrease even more than domestic sales and it will take years to recover from this,” he said.

A German mill source suggested a ‘cash-for-clunkers’ type car buying scheme might be needed to kick-start demand.

“Will governments help to support buying cars, it’s also a critical point because car producers have lost billions of euros and to make a forecast is totally difficult,” the source said.

“Customers have now started to ask for third quarter [prices]. My feeling is that they are asking and searching to view the market, but at the end of the day, it’s a difficult story.”

An Italian mill source said the willingness to buy imports is, at the moment, “very, very low in Italy. The sentiment is of dropping prices.”

The source was skeptical of any government aid for struggling mills, saying “economic support from the government for the moment are only promises and words.”

The Platts TSI hot-rolled coil index was calculated Wednesday at Eur434/mt ($470.50/mt) ex-works Ruhr and Eur413.50/mt ex-works South Europe, respective declines of Eur2 and Eur2.50 day on day.

Cold-rolled coil was assessed at Eur527/mt ex-works Ruhr, slipping Eur1.50 on the day, and Eur489/mt ex-works South Europe, down Eur6 week on week.

— Len Griffin, Amanda Flint