Outokumpu reports return of stainless steel demand
Demand for standard grades of stainless steel has recovered to some degree in 2010 compared to late 2009. The good order intake from the beginning of the year has continued. The increased demand reflects both restocking as a result of increasing metal prices, and improved demand from end-users. There are also initial signs of increased activity in investment-driven customer-segments, but this has not yet materialised in major orders. Inventories among distributors in Europe are estimated to be at normal levels.
Lead times on mill-deliveries for standard grades are normal at 6-8 weeks. Outokumpu is gradually increasing its production volumes and Tornio Works will have full production capability by June. The Group's delivery volumes in the second quarter are expected to be at the same level or somewhat higher than in the first quarter (333 000 tonnes). Delivery volumes are strongly dependent on distributors' short-term buying behaviour, and this is impacted by developments in raw-material prices, especially nickel. Base prices have been increasing recently and Outokumpu's average base prices for flat products in the second quarter of 2010 are estimated to be 50-100 EUR/tonne higher than the average in the first quarter. The contract price for ferrochrome in the second quarter increases significantly, this will begin to have a positive impact on the Group's profits from May.
Outokumpu's underlying operational result*) in the second quarter is expected to be somewhat positive. At current metal price levels, raw material-related gains are expected to be in excess of EUR 50 million. Cash flow is expected to be negative as mainly higher metal prices will increase working capital.
*) Underlying operational result= Operating profit +/- raw material related inventory gains and losses and non-recurring items.
CEO Juha Rantanen said:"After a very difficult period we can finally see a clear change for the better. Even though there was no improvement in profits in the first quarter, demand and delivery volumes were up. The profit improvement will follow in the second quarter. This recovery gives us the confidence to begin reconsidering our investment projects. Expanding our ferrochrome production was a very attractive project which the financial crisis forced us to put on hold. As the worst of the crisis is behind us and ferrochrome markets have become attractive again, it is time to take a new look at this investment. The Finnish Government's position on the Fennovoima nuclear power initiative is favourable to the overall investment consideration."
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