In a Dec 17 post entitled Outokumpu moves into India with Service Center we reported the Finnish stainless producer had dusted off plans for a full stainless service center on India’s west coast and had made a commitment to proceed with the investment. We got it wrong; picking up on some over enthusiastic domestic Indian reports that appeared well informed we reported the project was likely to proceed following the decision by the Finance Ministry not to implement a proposed import levy on stainless steel coils. In fact Outokumpu’s position had not changed. A year earlier they had decided to shelve the project with an announcement on December 11th 2008 stating the reason as a desire to maximize cash flow and maintain balance sheet flexibility. This was due to the weakened demand for stainless steel which was (accurately as it turned out) anticipated to continue. The service center investment in India was among several projects to be postponed, although the anti-dumping investigation into stainless steel imports by the Indian government also created some uncertainty.
A review of these postponed investments will be made by the end of 2010 but for now the priority is to balance short-term cost and cash flow management within the context of Outokumpu’s longer term business plan.
Outokumpu continues to struggle with very weak markets and poor capacity utilization. Stainless demand remains depressed although third quarter sales were above second quarter. The company has postponed investments in new melting facilities in Sweden as well as the Indian service center. Such cost containment initiatives have helped reduce losses and the firm has said they hope to break even by the end of this year. A return to strong growth will depend on a return to growth in western markets where the firm’s high quality and specialty alloy range command the premiums they deserve.