Falling steel production during the third quarter, particularly in Europe, will put a massive dent in profits at Cookson this year, the industrial materials company has warned. Its shares slumped and City analysts have cut forecasts again. And it doesn't look great for peers such as Morgan Crucible and Bodycote, either, given newsflow hints heavily at a further slowdown in production of trucks, cars, agricultural equipment and solar panels.
Strip out China and average monthly steel production volumes for July and August were 3 per cent lower than the average monthly run rate in the first half, according to the World Steel Association - in Europe it was 11 per cent. The seasonal pick-up in September didn't happen this year, either. In fact, steel output is still falling in the US, Europe and Brazil.
That's clearly bad news for Cookson's core engineered ceramics division. Making pipes and valves used in steel production chipped in almost two-thirds of revenue and profits in the six months to June, but management thinks the second half will be much worse. Analysts at N+1 Singer have sliced earnings estimates for 2012 by 10 per cent, implying a second-half profit for the division of £65m, down around 25 per cent on the first half.
What's more, the solar business continues to lose money, too. Cookson has already closed its plant in the Czech Republic and now one of the two factories in China is for the chop. None of this is good news for Morgan Crucible, whose kit is used in both blast furnaces and solar panels. Bodycote, meanwhile, flagged a softening at its Europe-dominated automotive and industrial operations back in July and there is unlikely to have been much improvement since.
On the plus side, Cookson's performance materials unit is still busy selling solder for the iPhone5 and tablet devices. A decision on whether to hive off this business will be made before the year-end.
