Boston, MA -- (SBWIRE) -- 07/25/2013 -- Industrial production data released for February 2013 supports our forecast of low growth across the Czech Republic's metal sector in 2013. Industrial production for the month decreased by 5.7%, year-on-year (y-oy) in constant price terms. Among the main causes the drop was a fall in domestic vehicle manufacturing, which fell by 10.4% y-o-y and contributed 1.9% to the fall in industrial production. The manufacture of basic metals meanwhile decreased by 12.2% in February and contributed 0.3% to the decline in industrial production. This trend supports our view that steel production is set to experience negative growth over the year as a whole, falling by 0.8% y-o-y to 5.47mn tonnes.

Furthermore, the Czech steel industry's dependence on longs production, which represents two-thirds of Czech output, means it will mirror the flatlining European construction industry. With construction set to remain weak into 2014, we see little hope of a boost in outside stimulus this year. Meanwhile, an oversupply of steel globally is set to weigh further on overseas demand. While the country's metal producers could be buoyed by increasing demand from Turkey and Poland, overall the outlook is bleak.

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Further indication of weakness within the steel sector was seen in the decision by one of the country's largest steel producers, Evraz, to suspend production at the company's Ostrava plant during April due to forecasted low demand. A company spokesperson cited the reason for the decision as 'low demand for steel products on the European market and sufficient pre-stocking of the company with semi-finished goods for the production of thick plates'.

With little upturn in the eurozone in sight we caution there is further downside risk for the Czech Republic's metals sector over the medium term, particularly given the Czech Republic's exposure to volatile external markets, although the industry's competitiveness should work in its favour. With rumours that further companies including ArcelorMittal are set to introduce cutbacks at their Czech facilities, BMI does not rule out a return to the lows seen in 2009 when output fell to 4.6mnt.

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