Salzgitter Warns High Costs Will Continue to Depress Earnings

   By Jan Hromadko 
 

FRANKFURT--German steelmaker Salzgitter AG (SZG.XE) Thursday warned that high commodity and energy prices will continue to depress its earnings in coming months as demand in much of its European core market remains muted due to the economic and fiscal crisis in the euro zone.

Speaking to shareholders at the company's annual general meeting, Chief Executive Heinz Joerg Fuhrmann said that steel demand in Europe will remain under severe pressure in the short to medium-term.

At the same time, steel prices will erode further due to increased imports from emerging markets like China and Turkey, Mr. Fuhrmann added.

"The achievable margins are sufficient for the most cost-efficient [steel] producers at best, and all these facts are--realistically--unlikely to improve in the short- to medium-term," Mr. Fuhrmann concluded.

He added that demand from the construction industry for rolled-steel products is particularly weak at present due to the struggling economies in southern Europe.

Mr. Fuhrmann said he doesn't expect a noteworthy recovery of demand for these products in the second half of the year, after a long winter already caused a belated seasonal recovery in demand in spring this year.

His comments come after Salzgitter earlier this month cut its 2013 profit guidance as prospects for recovering steel demand later this year deteriorated in the first three months of the year.

The company said it now expects a pretax loss in the mid-double-digit million euro range, after an earlier guidance of a pretax profit in the lower double-digit million euro range.

The reduced profit outlook has also been echoed from peers such as steel trader Kloeckner & Co. SE (KCO.XE), which earlier this month warned that it is increasingly unlikely that steel demand and prices will pick up in the second half of 2013. ArcelorMittal (MT), the world's biggest steelmaker, said oversupply will continue unless major steel-producing countries cut back production.

Salzgitter previously pledged to mitigate the expected pressure on earnings by streamlining the company and cutting costs.

But unlike some of its rivals, including ThyssenKrupp AG (TKA.XE), Salzgitter doesn't plan to sell loss-making steel assets, Mr. Fuhrmann said.

Write to Jan Hromadko at [e-mail]

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