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10.04.2014

Sector Report from Bank Austria Economics:
Metals sector: Austria's leading industry returns to growth

  • 2014 will see the steel and metalworking industries make up for last year's poor result: The sector is growing by at least 5 per cent in nominal terms
  • The steel price trend is substantiating a slow recovery for 2014
  • Austria's metals sector is highly competitive, offering an innovative range of products and efficient production processes
  • In the metalworking and steel industries, the value added per person employed is respectively 55 and 70 per cent above the EU average
  • Competitive strength means higher foreign trade surpluses: EUR 3.3 billion in steel and steel products and EUR 2.1 billion in metal products

With its key branches of metalworking and the steel industry, Austria's metals sector, which is focused on capital goods, will be able to more than offset last year's poor result in 2014. This is the optimistic conclusion drawn by Bank Austria's economists in their latest Sector Report for the metals sector. Both areas of the sector closed out 2013 with output below average. Whilst the steel industry still posted growth of 1.3 per cent, the output of metalworking companies dropped by 0.5 per cent. Producer prices also fell, as did sales: in metalworking by 0.8 per cent to EUR 14 billion, and in the steel industry by a substantial 5.8 per cent to EUR 15.5 billion.

Bank Austria economist Günter Wolf commented: "In 2014, we will see the steel and metal products industry benefit from increased investment by companies both in Austria and in key export markets, primarily Germany, which takes over one third of the industry’s exports. Even though the construction industry in Austria and abroad has yet to provide any great momentum, the sector can expect nominal sales growth of at least 5 per cent, meaning that not only will it completely wipe out the losses from 2013, it will also enjoy faster growth than at any point over the past ten years."

Steel price trend substantiates slow recovery in the sector
After falling for the past two years, the price of steel has once again slowly been rising since mid-2013. The average price of the main grades of steel on the German market increased by 3.4 per cent between July 2013 and March 2014, indicating a moderate upturn at the very least. "Even though the steel prices are only sending out weak signals of a recovery at present, we are still expecting the steel and metal products industries to up their pace of growth as 2014 progresses", said Wolf. "This is not least because companies in both sectors have held on to their optimistic output forecasts and have also expanded their workforce capacity over the past few months."

In January and February 2014, the number of people employed in the steel and metalworking industries increased by an average of 1.4 and 1.1 per cent respectively, while the industry as a whole cut its workforce by 0.2 per cent. In 2013, the steel and metalworking industries employed 1.3 and 0.6 per cent more people respectively, while workforce numbers stagnated on average across the industry as a whole.

Metals sector drives growth and enjoys encouraging prospects
Growth in the metals sector in 2014 will come mainly from the segments focused on capital goods. By contrast, there is a shortage of orders from the construction industry, which will hit metalworking companies harder than the steel industry as around one-third of the metalworking sector's sales depend directly or indirectly on the state of the structural engineering sector. Although the weak level of investment in privately financed commercial and office construction, the main customer segment for the steel construction sector, will improve slightly, no major growth is likely even in the next few years. Compared to the construction-focused segments, the business prospects for the manufacturers of tools, metal packaging and shaped metal goods and in the metal finishing segment are rosier in the short and medium term.

The metals sector, with metalworking and the steel industry as its key segments, plays a particularly important role in Austria's industrial fabric: Compared with other EU countries, it is even the case that Austria's industry is amongst those that are most strongly specialised in the metals sector, which makes up 17 per cent of industrial value added as against an average of 14 per cent across all EU-27 countries. Metalworking and the steel industry are among Austria’s industrial growth drivers, propelled to a considerable extent by the close (supply) links they enjoy with the industries spearheading growth, most notably vehicle construction and mechanical engineering.

Metals sector more competitive than the global average
The sector's competitiveness is above average in an international comparison, as shown by consistently high foreign trade surpluses: In 2013, the export surplus generated with steel and steel products was worth EUR 3.3 billion, while with metal products it was EUR 2.1 billion. The most successful products exported by Austria's metalworking companies are metal fittings and structural elements made from steel and aluminium. Since the late 1990s, the foreign trade balance has improved more or less continuously in both industries, both in terms of value and volume. "Given that Austria's costs are relatively high, its success in exporting sheet metal, wire, fittings and steel and aluminium structural elements is remarkable, as most of the products are stronger on the price than the quality front when it comes to competition', Wolf concluded. 'In other words, manufacturers in this country have become successful specialists in high-quality niche areas and have been able to carve out a stable position on the market.'

The willingness shown by companies to innovate is one reason behind the ever-increasing quality of their product ranges and their more efficient production processes. According to the criteria used in the EU's innovation surveys, Austria's metals sector is also more innovative than average and creates a range of products that generates relatively high value added. On average, the steel industry adds EUR 110,000 of value per person employed, some 70 per cent above the EU-27 average, while the metalworking industry manages a still impressive EUR 68,000 per person employed, 55 per cent more than the EU average.

Being highly competitive is brightening the prospects for both branches of Austria's metals sector in an environment that is unlikely to see any above-average growth in demand in the long term. In a global comparison, Europe's metal industry is losing significance. This is because its most important customers in particular, the construction industry and the vehicle and electronics industry, are seeing relatively little momentum at present. Infrastructure is already fairly well developed, the housing stock is generally adequate and most homes have all the household appliances and cars they need. In the long term, the consumption of finished steel products will grow at well below 1 per cent per year in Europe. This is slower than that seen over the past 20 years (1.1 per cent per year on average) and some way behind the global rate. The World Steel Association is expecting consumption to grow by at least 2 per cent annually for the next two decades. Europe will not lose all its significance as a centre for the steel industry, however – not even in the long term. "I firmly believe that the industry in Europe will continue to reap the rewards from its production network, with local processors, the vehicle and electronics industry and the mechanical engineering sector", said Wolf, summing up. "This geographical advantage is particularly beneficial to Austria's steel industry and its metalworking companies."

Enquiries: Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0) 50505 – 41954
E-mail: guenter.wolf@unicreditgroup.at