Good times for steel producers

The Steel Financial Insight report discusses the most recent annual financial results from the leading 100 companies in the steel industry. Strong global demand underpinned profitability in 2007. Despite the turbulence in the USA caused by the credit crunch, and fears of a slowdown in Asia, investments continued to drive demand for steel, and fed through to sustained company operating and net profit margins. In a number of markets, from Russia, China, India and the Middle East strong domestic growth has kept pace with increases in capacity, and leading producers such as Severstal have been able to increase their margins yet further during 2007.

At the end of 2007, revenues of the leading steel companies in West Europe and North America were still supported by buoyant global demand and high prices. However, in both regions the key players started feeling the pinch of escalating raw material and energy prices, and saw their profit margins being eroded in 2007.In particular, although US Steel registered record-high quarterly revenues in 2007, its net profit margin dropped from 8.7% in 2006 to 5.2%. Most West European producers also felt the pressure of growing input prices, although they remained slightly more profitable than their North American peers.

Arcelor-Mittal reported record-high revenues of $105.2 billion (78% higher year-on-year) in FY2007, and was one of the few West European producers to improve, albeit slightly, its net profit margin, from 8.9% in 2006 to 9.9% in 2007. Arcelor-Mittal consolidated its dominant position in 2007 through intense M&A activity. Tata Steel was also extremely active in 2007, and hit the news with the acquisition of Corus in April 2007, The Indian company benefitted from a robust Indian economy, firm steel prices, and higher output volumes, and seems on track to achieve its ambitious goal of creating a 50 Mt steel capacity by 2015.

Brazilian producers were among those leading the field in terms of profitability and scale of new investments. Sustained by a booming domestic economy, Brazilian producers are increasingly focusing their efforts towards the domestic market. Usiminas is currently installing a new blast furnace, while CSN has unveiled in Q2 2008 a capital expenditure plan of US$10 billion aimed at expanding its production capacity to 16.7 Mt/y by 2014.

The discount date for the Steel Financial Insight report ends this Friday, June 20.