CMC Poland shipments fall amid slowing industrial activity

As a result of the ongoing energy crisis, industrial activity in Central Europe is now contracting, thereby impacting demand for merchant bar and some wire rod products, says CMC. Turnaround in this activity likely depends on the success of the EU’s efforts to lower energy prices from their current historically high levels.

CMC Poland saw steel shipments fall 7% on-year in the fourth fiscal quarter through August to 428,000 short tons. Although rebar rose slightly to 177,000t, merchant and other product sales fell 12% to 251,000st, Kallanish notes.

Average selling price was however up 16% to $888/st, with cost of ferrous scrap utilised down 3% to $435/st. Steel margin thus surged 44% to $453/st. Net sales grew 12% to $412.3 million but adjusted Ebitda was down 5% to $64.1m.

Ebitda fell despite expanded margins due to lower shipment volumes, higher costs for energy and alloys, the negative earnings impact of selling higher-cost inventory, and the impact of the weakening Polish zloty versus the dollar.

Europe end market demand was mixed during the quarter. Polish construction activity continued to grow on a year-over-year basis, while industrial production across Central Europe has contracted for several months, CMC says.

Volumes during much of the quarter were negatively impacted by a supply chain destocking cycle that occurred in the wake of widespread safety stock procurement by end users and intermediaries following the outbreak of war in Ukraine. The purchase of safety stock meaningfully benefited CMC’s shipments during the fiscal third quarter, but the fourth quarter experienced the opposite effect.

“Poland’s trade with EU countries has benefited from a relatively advantageous energy cost position. Whereas the average spot price for electricity was up over 280% on a year-over-year basis across Germany, France and Italy, it was up a more modest 98% in Poland,” CMC chief executive Barbara Smith said during the firm’s August-quarter earnings call.

“With regards to rebar trade within countries outside the EU, little foreign material has entered the Polish market to offset the loss of Russian and Belarusian rebar. Imports have increased significantly into the broader EU but this material has gone to countries that are more logistically accessible and are experiencing higher energy costs,” Smith added.

In the fiscal year through August 2022, CMC Poland sales rose 7% on-year to 1.72 million st, with rebar at 622,000t and merchant and other at 1.1mst. Net sales rose 55% to $1.62 billion and adjusted Ebitda soared 133% to $346.1m.

Adam Smith Poland