Spain’s Acerinox sees stainless output at two-thirds capacity in Q2

Spanish stainless steel producing group Acerinox expects to run at two-thirds of normal activity in the second quarter, with its activities in Malaysia and South Africa expected to be impacted for much of the quarter, the company said Friday.

The COVID-19 pandemic is affecting market developments significantly in the second quarter, it said in a regulatory filing.

“We will resume our activity in Malaysia and South Africa in May, as we did in Spain (where we had to close down for 4 days), which will be in our best interests, while on the other hand the market deterioration is spreading to the United States, despite the fact that in this country we have not ceased activity,” the company said.

“In the second quarter the Acerinox Group, as a whole, is expected to work at 65% of its normal activity, with the consequent negative impact in the statement of profit or loss.”

At the same time, “planned investments are being reviewed, postponing those that are not strictly necessary, and optimizing working capital needs,” the company said.

For the first quarter of 2020, Acerinox reported that melting production decreased 5% year on year to 599,843 mt, although this was an increase of 22% from the fourth quarter of the previous year. The fourth quarter is seasonally impacted by US holidays which affect output at its North American Stainless unit.

The company lost three days in Spain, five days in South Africa and 13 days in Malaysia at the end of Q1 as the result of production lockdowns, it said.

Acerinox’s hot-rolled flat production totaled 517,000 mt in Q1, a drop of 3% year on year, but up 22% from Q4.

Cold rolling production was 393,000 mt, down 7% year on year and up 12% from Q4.

Long product output fell 14% year on year to 57,000 mt, but increased 25% from Q4.

Overall, net profit was down 14% year on year to EUR33 million ($35.63 million).

Ebitda short of analysts’ expectations

The company’s earnings at Ebitda levels were 7% short of an estimate by brokerage Jefferies International and 15% below consensus, Jefferies’ analysts said in a research note Friday, with headwinds expected in Q2. Planned investment is being reviewed in addition to working capital optimization, as expected, Jefferies said.

In Europe, the company said definitive safeguard measures, not designed for a downward market, have not served to stop imports, which have maintained a penetration of around 25% in the case of flat products, and have continued to exert enormous pressure on prices.

In Asian markets, the company saw excess of production in China and Indonesia, which caused a continued drop in prices.

The American market continued to perform well, under the protection of Section 232 tariffs and the economy’s good performance. Imports remain low, with a market share of around 14%. Inventories in the United States in March were at 2.6 months, below the 3-month average of recent years. Such low inventory levels have not been seen since January 2015, the company said.

The company expects to consolidate the results from Germany-based VDM next quarter, after the acquisition was concluded March 17.

VDM develops and manufactures special nickel and cobalt alloys as well as high-alloy stainless steels with special properties. It has seven production sites in Germany and the US.

With this transaction, the Acerinox Group plans to diversify towards sectors with greater added value such as aerospace, chemicals, the medical industry, oil and gas, renewable energies, water treatment and emissions control.

— Gianluca Baratti