Sector Study: Basic Metals
Low domestic demand – The decline in international prices in 2016 has reduced manufacturers’ revenues
The basic metals manufacturing sector is the subject of investigation in a recent study conducted by Infobank Hellastat S.A. According to Alexis Nikolaidis, Economic Research & Sectorial Studies Senior Analyst, during 2014, and up to the first semester of 2015, the decline noted in a number of market sectors showed a slight recovery, due to the restart of construction of major road routes, as well as the implementation of some minor infrastructure projects. However, the imposition of capital controls in July, and the aggravation of economic conditions have since “frozen” the implementation of several construction projects. Moreover, the part of domestic demand that is derived from private construction has continued to be weak.
However, this negative environment was offset for exporting manufacturers by the favorable conditions that dominated the international markets, and mostly the European ones, and especially the aluminium market, which was dominated by rising processing prices. On the contrary, the picture for the steel market was negative, with the diminishing demand, and exports of cheap raw materials and goods from China causing more pressure on international prices
Over the last two years, the metal markets has been unstable, with the prices demonstrating high volatility, due to the investors’ concern about the slowdown of the Chinese economy, as well as the possible exit of Greece from the Eurozone. This fact has been reflected in the gradual de-escalation of prices since the second semester of 2015; a trend that grew stronger during 2016, affecting negatively the revenues of metal manufacturers.
Furthermore, a major burden has been imposed on domestic companies by the high cost of energy, due to increases in electricity rates over the last years. Nevertheless, during the two-year period of 2014-2015, the cost fell due to the de-escalation of fuel prices, and the combination of this fact with actions taken in order to optimize the manufacturing processes have helped to improve competitiveness.
According to Mr. Nikolas Gouzelos, CEO of Infobank Hellastat, “Metal manufacturers should continue to direct a substantial part of their output abroad, and search for new geographical markets, which have not been affected by the recession, since this will enable them to offset any losses that they have suffered from the Greek market”.
In the study conducted by IBHS, an analysis takes place of the financial statements of 37 companies. The key conclusions that are drawn can be summarized as follows:
• In 2015, Turnover rose by 24.2%, at €2.8bn; a change mainly derived from the 4 biggest manufac-turers.
• In 2015, EBITDA more than doubled, at €193.8m, while pre-tax losses showed a sharp drop to just €3.8m.
• The EBITDA margin rose at 3.5%, while the EBT margin remained negative (-2.1%).
• Capital leverage rose marginally to the level of 1.1 to 1.