Germany’s Salzgitter paints bleak outlook, threat of recession looms

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