Annual Report 2010 - Outokumpu

18
Market review
Stainless steel markets began to recover in the beginning of 2010, with distributor customers in particular restocking in
the wake of increasing metal prices. Compared to the fourth quarter of 2009, apparent consumption of flat products
increased by 13% in Europe and by 7% globally in the first quarter of the year. Demand continued at a healthy level as
the second quarter began, but negative economic data started to have an adverse effect on market activity in May.
Demand for stainless steel weakened as the nickel price started to decline. Compared to the first quarter of 2010,
apparent consumption of stainless steel flat products in the second quarter was almost unchanged in Europe and 10%
higher globally. In the third quarter, global demand for stainless steel softened and apparent consumption went down by
13% compared to the second quarter. In Europe, demand was down by 20% in the third quarter because of the normal
seasonal factors, with the main causes of reduced market activity being the impact of the declining nickel price on overall
demand and the European holiday season. In the fourth quarter of 2010, global demand for stainless steel remained
lacklustre with destocking visible in all the major stainless steel consuming regions as a result of the decline in metal
prices as the end of the year approached. Apparent consumption was almost unchanged on a global basis, but in Europe
up by 4% compared to the third quarter.
Read more about the stainless steel market in 2010.
The average German base price for 2 mm 304 cold rolled sheet in 2010 was 1 252 EUR/tonne, 8% higher than it was in
2009. According to CRU, the average base price declined somewhat from the fourth quarter of 2009 and was 1 235
EUR/tonne in the first quarter. The recovery in base prices which began towards the end of the first quarter resulted in an
increase to 1 317 EUR/tonne in the second quarter before prices fell back to 1 245 EUR/tonne in the third quarter. During
the third quarter, the price difference between Europe and Asia widened and there was a clear increase in volumes
imported into Europe, especially from Asian producers. One result of this was additional pricing pressure towards the end
of the year, and the base price in the fourth quarter fell to 1 213 EUR/tonne. The transaction price for stainless steel
averaged 2 780 EUR/tonne in 2010, 37% higher than it was in 2009, mostly because of higher nickel prices in 2010.
Increased competition resulted in prices for special grades and project-related products coming under pressure during
the year. Outokumpu's average base prices in 2010 were somewhat lower than the CRU reference base price for
German 2 mm 304 cold rolled sheet.
The nickel price increased from a level of 18 000 USD/tonne at the beginning of 2010 to some 26 000 USD/t in April
before falling back to roughly 19 000 USD/tonne in the summer. From July onwards, the nickel price mostly exhibited an
increasing trend and finished the year at a level of some 25 000 USD/tonne. The ferrochrome contract price increased
from 1.01 USD/lb in the first quarter to 1.36 USD/lb in the second quarter, but fell back slightly to 1.30 USD/lb for the
remainder of the year. The price of molybdenum – used to make stainless steel acid resistant – moved in the 15–18
USD/lb range throughout the year and was relatively stable. As with nickel, the highest price for molybdenum – close to
18 USD/lb – was recorded in April.
Disappointing result in recovering market conditions
Higher delivery volumes and transaction prices for stainless steel in 2010 resulted in Group sales for the year increasing
to EUR 4 229 million (2009: EUR 2 641 million). Stainless steel deliveries totalled 1 315 000 tonnes, a clear increase
over the previous year (2009: 1 030 000 tonnes).
The operating profit in 2010 totalled EUR -83 million (2009: EUR -441 million). Net non-recurring costs of some EUR 17
million are included in the 2010 operating loss (a write-down in connection with the decision not to restart postponed
investments at Avesta in Sweden, including a new annealing and pickling line). In 2009, the operating loss included net
non-recurring costs of EUR 20 million (EUR 15 million writedowns resulting from the decision not to proceed with the
melt shop investment at Avesta in Sweden and EUR 5 million of restructuring provisions). Raw material-related inventory
gains in the 2010 operating result totalled EUR 26 million (2009: EUR -78 million). The underlying operational result for
2010 was EUR -91 million (2009: EUR -343 million). The main reasons for the improved operating result were
significantly higher delivery volumes and increased base prices. Higher delivery volumes and increased contract prices
Outokumpu Annual Report 2010 – Outokumpu – Management discussion