German steel service center group Kloeckner is expecting steel prices to gain more stability this year but sees intermediate risk of “poor long-term profitability” amid a weakening economy and reduced steel demand, the company said Tuesday.
In the company’s financial report for 2019 published Tuesday, Kloeckner said that the outlook for the construction industry remains positive and that output cuts at steel producers and “an end to inventory rundown” should bring supply and demand “better into line” and lead to improved steel prices.
However, other customer markets such as the auto and mechanical engineering industry are not expected to grow, while an increase in steel capacity in the US could put steel prices under pressure in the NAFTA region.
“In anticipation of a slightly weakening economy in Europe and the USA with moderate steel price levels and reduced demand, we see an intermediate risk of Klöckner & Co facing poor long-term profitability,” the report said.
Kloeckner said it would work on its procurement strategy to combat the negative macroeconomic effects.
“In procurement, we will continue to systematically leverage the economies of scale we have over many competitors. We target major scale economies by focusing quantity requirements on suppliers who grant commensurate terms and by making intensive use of global procurement options,” the report said, adding that shipments are expected to increase again in 2020.
Overall, shipments at the Kloeckner group amounted to 5.6 million tons, down 7.5% year on year. Shipments decreased at all three Kloeckner segments in the US, Switzerland and Europe. The company said falling steel prices and weak demand resulted in a decline of around 7% in Klöckner sales to Eur6.3 billion in 2019.
Operating income (EBITDA) amounted to Eur124 million, down from Eur229 million in 2018.
Klöckner anticipates an increase in operating income for the fiscal year 2020 driven by the anticipated increase in the stability of steel prices as well as planned efficiency improvements and cost savings such as those generated through the growing automation of processes.
The share of sales generated via digital channels will be raised to over 40% this year and to over 60% by 2022, according to the company.
— Laura Varriale