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Outokumpu's Q3 stainless steel sales slump, will limit capex, cut jobs

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Outokumpu's Q3 stainless steel sales slump, will limit capex, cut jobs

Highlights

Q4 sales, EBITDA seen continuing at Q3 levels

Company to reduce ferrochrome sales on spot markets

  • Author
  • Diana Kinch
  • Editor
  • Tom Balcerek
  • Commodity
  • Metals

London — Major Nordic-based stainless steel and ferrochrome producer Outokumpu said Nov. 5 it expects the COVID-19 pandemic to have a "significant impact" on the stainless market throughout 2020. The company announced plans to cut headcount by around 10% as it seeks to optimize costs to better compete with growing import levels into the EU.

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The company expects its Q4 stainless steel deliveries to remain stable at Q3 levels – which slumped to 488,000 mt from 523,000 mt in the previous quarter – as some market areas remain weak, including those impacted by low oil prices, said CEO Heikki Malinen on a Q3 results conference call.

"Our plans factor in a potentially slow market recovery," he said, noting that the company projects only minor increases in product sales in both 2021 and 2022. Seasonal end-year maintenance at the Tornio, Finland, works is expected to have a EUR10 million ($11.81 million) negative impact on the Q4 result.

Outokumpu's sales revenues fell to EUR1.254 billion in the quarter, from EUR1.420 billion in the previous quarter on average lower product prices, it said. Prices of nickel, a major raw material for stainless steel production, however grew 16% from Q2, pressuring costs. Prices of ferrochrome, which the company also sells, remained flat.

Adjusted EBITDA halved in Q3 to EUR22 million, from EUR45 million in the previous quarter, and is expected to remain at the Q3 level in Q4, it said. Analysts at Jefferies described the guidance as "disappointing". The company has also cancelled its payment of dividends for full-year 2019.

Surging stainless steel imports into the EU – which continued to rise to take 31% of market share in Q3 – were highlighted by Malinen as a major factor in the challenges the company faces, including the lower market prices. While the company welcomes the definitive anti-dumping duties imposed by the European Commission in October on imports of hot-rolled stainless steel from Indonesia, China and Taiwan, it considers this action still insufficient.

"There is an urgent need to address unfair market practices and carbon leakage," he said. "The EU should use all the trade defense mechanisms it has."

In September the EC started an anti-dumping investigation into cold-rolled stainless steel imports from India and Indonesia with the possibility of provisional measures. Malinen noted discussions are underway on a potential continuation of the EU import safeguards measures, due to expire at the end of June 2021.

Financial discipline, job cuts

Malinen said Outokumpu is to adopt a new strategy to "de-risk" the company, exercise stronger cost and capital discipline and boost performance and sustainability in the "new market normal."

The company will start negotiations immediately on 1,000 job losses, with 270 to go in Finland, 250 in Germany, 190 in Sweden, and others to be lost in the future in both Europe and the company's Americas operations including Mexico, he said. It aims to strengthen its presence in the Americas, in automotive appliances and pipe and tube segments, to turn around its long products operations and to introduce new products including mid-range bar.

A EUR200 million EBITDA run-rate improvement is to be delivered by the end of 2022 and net debt, currently at EUR1.1 billion, is to be reduced.

In terms of sustainability, the use of scrap in production is to be increased from the current level of around 85% to around 90%.

New types of FeCr production; fewer spot sales

Outokumpu's annual capex is to be limited to EUR180 million in both 2021 and 2022 and a substantial part of this (EUR123 million over the two years) will go to enlarging its Kemi chromite ore mine in Finland, from which it makes ferrochrome – another stainless steel input – for both its own operations and for sale to the market.

The company is making a deep mine investment to secure ore availability into the 2040s and to allow it produce more types of ferrochrome products, Malinen said. It plans to reduce ferrochrome sales into spot markets, where logistics costs are higher, and develop longer, strategic relations with customers in this volatile market, he said.