Metals and especially the steel industry are of paramount importance for the Italian economy, accounting for about 2 percent of GDP, however the industry is enduring a lack of growth due to low cost of steel imports. The Italian economy is recovering slowly. Forecasts from the EU, OECD and the Italian Confederation of Industries predicted a growth of 0.6 to 0 percent in 2015 and 1.2 to 1.5 percent in 2016, according to a report by Deloitte. Yet, the construction sector still feels the effect of the market slowdown.
In 2015 the construction sector recorded a reduction in investment of around 1.3 percent (with respect to 2014) reaching an investment level of around USD137.9 billion, according to Deloitte’s report. A further reduction was avoided mainly due to the extension of fiscal incentives for projects involving building renovation and energy efficiency, which accounted for around 37 percent (USD51.32 billion) of the total. For 2016 the Association of Construction Companies (ANCE) has forecast a further small contraction of around 0.5 percent in the sector that will recover over the period 2016-2018, where investment in the sector is forecast to reach USD1.09m in 2017 and USD2.21m in 2018. This includes the effects of a proposed government stimulation package for infrastructure investments. Concerning Steel and Metal performance, Italian steel production decreased by more than 7 percent in 2015, to 22 billion tons, and continued to decline in Q1 of 2016, according to a recent report by Atradius. In addition to the subdued demand, producers suffered from low cost Chinese steel imports, especially in the flat steel products segment (prices of flat products imported from China are on average 15 percent cheaper than domestic products). The Chinese competition has also taken advantage of the fact that the Ilva steel mill still operates well below full capacity.
“The outlook for the Italian steel and metals industry in H2 of 2016 and early 2017 remains mixed, as exports benefit from a weaker euro exchange rate”
The stainless steel segment is less impacted by Chinese dumping policies, while the margins of foundry businesses have rebounded due to lower energy prices. The Italian steel distributor and service center segments has a large number of relatively small companies. While Atradius analysts are seeing mergers and consolidation among the top players, smaller players are experiencing a greater impact from weak demand, pressure on margins and are highly leveraged. In this segment, businesses linked to the construction sector and to the oil and gas industry (tubes) continue to face difficulties, while businesses dependent on automotive have benefitted from the upswing in the car industry. Wholesalers of scrap have been negatively affected by persistently low prices, leading to an uptick credit insurance claims. The outlook for the Italian steel and metals industry in H2 of 2016 and early 2017 remains mixed, as exports benefit from a weaker euro exchange rate. However, the report stated that the Algerian market as one of the main export destinations (together with Germany) is expected to mature within the next 4-5 years and has recently imposed limits on steel imports. While steel and metals prices are expected to rebound somewhat in the coming months, helping to stabilize businesses’ margins, excess production capacity will remain an issue for the industry. Despite the on-going challenges, payment delays are not expected to increase for the time being after increasing in 2015. However, businesses operating in the domestic market are still affected by slow payments from their customers. Insolvencies are not expected to show a major increase in 2016, however, caution is advised due to the still fragile nature of the sector.
Content Editor & Researcher
CPH World Media