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Slowdown in stainless demand
publication date: Jul 20, 2011
The underlying operational result in the second quarter improved marginally to EUR -5 million. Operating loss in the second quarter included some EUR 26 million of raw material-related inventory losses and some EUR -138 million of non-recurring impairments and restructuring costs. Net financial items of EUR 191 million included capital gains of EUR 242 million from financial asset divestments. Net profit was positive at EUR 50 million.
Outokumpu's gearing at the end of the second quarter increased to 82.0%. While the divestments had a positive effect on Group gearing, adverse impacts resulted from impairments, working capital increase and dividends. SHORT-TERM OUTLOOK Demand for standard grades of stainless steel slowed in Europe as summer approached and the nickel price began to decline. This led to destocking among customers. While normal seasonality resulting from the holiday season in Europe has affected the distributors' buying behaviour underlying demand continues to be relatively stable globally. Lead times for standard grades continue to be normal at 6-8 weeks. As a result of the slowdown in demand during the European holiday season and annual maintenance breaks at Group mills, Outokumpu expects that its stainless steel delivery volumes in the third quarter will be slightly lower than in the second quarter. Outokumpu's average base prices for stainless steel in the third quarter are expected to be somewhat lower than average prices in the second quarter. Lower delivery volumes and lower average base prices are expected to lead to negative underlying operational result in the third quarter. Additionally, declined metal prices are expected to result in raw material-related inventory losses (at current metal prices). Outokumpu therefore estimates the Group's third-quarter operating profit to be clearly negative. CEO Mika Seitovirta: "During my first months much of our attention has been on the Group's short-term agenda, and this has provided us with quick sources of cash and helped attack the most critical factors burdening Outokumpu's profitability. In the stainless business, improving sales, generating cash and reducing costs are part of a never-ending race. Current market circumstances mean that the pressure to move even faster with this work and related actions is higher." |
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