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Swedish steel output outperforms European rivals in H1 - Report

According to latest Sweden Metals Report, Swedish steel and aluminium production continues to outperform European rivals and in H1 2011 made a recovery to pre recession norms.

In the first four months of 2011, Swedish crude steel output grew 12.6% YoY to 1.86 million tonnes. This growth consolidates the recovery begun in 2010 when output rose 72.7% to 4.85 million tonnes.

Monthly output has finally returned to pre recession norms. The Swedish steel industry making the most of its high value production and a product mix that is favorable to the trends within the European steel market. Companies and Markets believes that 16% growth in exports to 4 million tonnes will lead to a 15% rise in crude steel production to 5.57 million tonnes in 2011, an upward revision from the 5.35 million tonnes forecast in the previous quarter and a 17.6% rise in hot rolled output to 5.23 million tonnes the same year.

This would mark a full recovery to pre crisis levels of production. At the same time, primary aluminium production saw a brisk return to normal rates. After halving output in 2009 to 40,250 tonnes, Companies and Markets estimates that Sweden's only primary aluminium smelter, Kubal, returned to 2008 rates of output in 2010, at close to 82,000 tonnes and should reach full capacity of around 100,000 tonnes per annum in 2011.

Metals production has been spurred on by a revival in export-oriented Swedish manufacturing. This could be jeopardized by the appreciation of the Swedish krona against the euro at a time of rising raw material prices. Despite having already appreciated by more than 23% against the euro since mid 2009, Companies and Markets believes the Swedish krona could make further gains through 2011.

Any appreciation of the krona would negatively affect the prospects of a sustained recovery in the metals industry. Deleveraging and weak consumption remain key drags on demand in parts of the eurozone, which could depress exports in the event of a double dip recession. In this event, the recovery process would be prolonged, resulting in years of below trend growth. However, the chances of a double dip recession appear to be waning.

Companies and Markets expects domestic consumption to return to near pre recession levels by 2012-13, but output will be dragged down by lacklustre export performance. Poor performance in the automotive sector has depressed domestic industrial demand for flat products. In consumption terms, a collapse in domestic industrial output and consumer demand in 2009 led to a 50.6% drop in finished steel consumption to 2.70 million tonnes, while the aluminium market plummeted 48.1% to around 123,900 tonnes. This was partly corrected in 2010, when finished steel consumption grew 51.6% to 4.10 million tonnes and aluminium consumption rose 52.8% to almost 200,000 tonnes. While Companies and Markets believes strong domestic demand growth can continue over the next several quarters, their core view is that a slowdown in headline growth is inevitable.

Companies and Markets' outlook is predicated on the winding down of the inventory effect and the stalling of household credit growth from 2012. Inventories have been the largest contributor to Swedish steel output growth, but base effects will erode by H2 2011 and finished steel consumption should grow by a lower 20.7% to just under 5 million tonnes in 2011.