Voestalpine confident steel market on the mend

VIENNA Wed Aug 7, 2013 6:27am EDT

A worker walks in the plant of steelmaker Voestalpine in Donawitz, May 6, 2013. REUTERS/Leonhard Foeger

A worker walks in the plant of steelmaker Voestalpine in Donawitz, May 6, 2013.

Credit: Reuters/Leonhard Foeger

VIENNA (Reuters) - Demand from manufacturers for steel is finally showing signs of stabilizing, Austrian producer Voestalpine (VOES.VI) said on Wednesday, lifting its confidence in its profit forecasts as it predicted rises in world prices this year.

Results from the specialized steel products maker continued to show resilience to the downturn that has afflicted the $500 billion industry, a gauge of broader economic health, as demand drops in Europe and Chinese growth momentum slows.

Chief Executive Wolfgang Eder said he expected steel prices - which have risen from 3 1/2 year lows in the past month - would show a rising trend through the fourth quarter, helped by currently low inventories.

Some analysts have cast doubt on the recent bounce in spot prices, saying broader oversupply is likely to counter any recovery.

"Although the current situation does not suggest a market recovery, the first signs of stabilization at a low level are nevertheless beginning to be noticeable," Voestalpine said.

"We expect that towards the end of the summer the prices will rise and that in the last calendar quarter there should be a trend of rising prices," Eder told journalists on a call.

Voestalpine shares rose 1.4 percent to 29.86 euros by 0521 ET and were the biggest gainers in the European basic resources index .SXPP, which fell 0.9 percent.

The company reported small declines in sales and profit for its first quarter but it also beat analysts' forecasts and said it was now slightly more confident in its forecast for stable operating and core earnings for the year to end-March.

Eder said the company also expected broadly stable revenues this year. Voestalpine had previously said it expected revenue of between 11.5 and 12 billion euros for the year to end-March, compared to 11.5 billion euros in the previous year.

Revenue in the quarter to end-June fell 4 percent to 2.94 billion euros ($3.91 billion), while earnings before interest and tax (EBIT) slipped 2 percent to 223 million euros, beating the average estimates in a Reuters poll.

By contrast, German steelmaker Salzgitter (SZGG.DE) slashed its full-year outlook on Monday for a second time this year, while ArcelorMittal (ISPA.AS), the world's biggest steelmaker, also cut its outlook last week.

HOT AIR

Voestalpine expressed exasperation with a lack of concrete measures to reinvigorate European industry, calling EU statements "hot air" at a time when U.S. industry is enjoying a renaissance thanks to cheap energy and friendly legislation.

Eder, who is also president of the European steel association, has called repeatedly for a controlled reduction of chronic overcapacity in the European steel sector to stop destructive price wars.

Voestalpine has made expansion outside Europe the cornerstone of a plan to boost its sales by two-thirds by 2020, and is investing about 500 million euros to build a new sponge-iron factory in Texas.

The company said steel demand in Europe was still weak but relatively stable from its key automotive customers, thanks to exports of luxury cars from Germany that compensated for fewer new car purchases inside Europe.

The head of Austrian fireproof materials group RHI (RHIV.VI) also told Reuters on Tuesday he saw the steel sector bottoming out. [ID:nWEB009H9] German steel distributor Kloeckner & Co (KCOGn.DE), which expects to return to profit next year after a deep restructuring, said prices in the United States had recovered in the second quarter. [ID:nL6N0G81SJ]

Voestalpine's steel division, worth about a third of its total revenues and a quarter of operating profit (EBIT), saw sales fall 1 percent and EBIT rise 8 percent in the quarter.

Voestalpine shares have risen 6 percent since the start of the year, versus a 21 percent drop in the European basic resources index .SXPP.

The stock trades at 10 times 12-month forward earnings, according to StarMine, making it cheaper than all its peers thanks to its relatively high profits. ArcelorMittal trades at 28 times forward earnings, and Salzgitter at 50 times. ($1 = 0.7513 euros)

(Additional reporting by Maria Sheahan in Frankfurt; Editing by Michael Shields and Patrick Graham)