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With Czech export performance a major determinant of the performance of the countrys steel industry, the crisis in the eurozone could reverse the output growth experienced since 2009, according to BMIs latest Czech Republic Metals Report.

In the first 10 months of 2011, Czech crude steel output grew 6.9% y-o-y to 4.66mn tonnes, which followed a year when production was up 12.7% to 5.18mn tonnes. Czech monthly output began declining after a peak of 508,000 tonnes in May 2011, falling to 374,000 tonnes in October. The decline in production coincided with a consistent fall in product prices that squeezed margins, despite falling raw material costs. This prompted ArcelorMittal to announce in December 2011 that it was seeking to reduce its Czech workforce by around 10%, implying production cut-backs. However, it stopped short of idling facilities, as it plans to do in neighbouring Poland.

The decline in production has prompted BMI to revised down its crude steel forecast for 2011, estimating output of 5.5mn tonnes, a rise of 5.8% y-o-y. Given the downturn in the Czech Republics main export market, Germany, and plans by ArcelorMittal to further scale back production, BMI expects a contraction in the steel industry in 2012. Crude steel is forecast to fall by around 11% to 4.87mn tonnes while hotrolled output is set to decline 8% amid a 10% drop in exports to 4.46mn tonnes. A contraction will reverse many of the gains made over the past two years and ensures that the Czech Republic will struggle to return to the kind of production volumes seen before the 2008 crisis.

Austerity programmes designed to stabilise the eurozone economy will inevitably impact on the Czech Republics industrial activity and, in turn, the performance of its steel industry. Exports are likely to decline by around 10% to 4.46mn tonnes with the value of exports likely to decline. Domestic consumption of finished steel products is also set to decline, by 11% to 5.21mn tonnes. Both consumption and export figures are not, at this stage, likely to fall back to the 2009 low. Nevertheless, we have put back the full recovery to pre-2008 levels to 2016 with a long period of slow recovery as the problems in external markets are unlikely to abate significantly. The Czech steel industrys dependence on longs production, which represents two-thirds of Czech output, means it will mirror the flatlining European construction industry.