Earnings meltdown at Swiss steel

Swiss steel is bracing for tough times ahead Keystone Archive

Swiss steel reported disappointing figures on Monday, with annual profit down almost 80 per cent to just SFr2.9 million ($1.72 million).

The bad news comes as Swiss steel is bracing for tough times ahead following the President George W Bush’s decision to impose 30 per cent tariffs on steel imports.

Earnings at Swiss steel went into meltdown even though sales declined just two per cent to SFr576.8 million. There were two main reasons for the fall in profit.

“One of the main difficulties has been the exchange rate,” says Swiss Steel’s chief financial officer, Arnold Huber. “The euro has lost a lot of value and that has cost us around SFr15 million profit and then of course there was the general weakening of the economic environment.”

Exchange rate

Huber says that every time the franc increases by one centime against the euro, the steel industry loses SFr3 million. The higher cost of natural gas has also had a negative effect.

The poor profit results mean there will be no dividend for shareholders. The result is especially galling, since Swiss steel managed another record year for production last year.

Last year its two plants produced 1,048,000 tons of raw steel, which is mainly used in the building, machine and auto sectors. The industry employs less than 1,300 workers.

That is a tiny amount by international standards but Huber is confident Swiss steel will continue to expand.

“Our clear target is to show better results for the current year and even better results for 2003,” says Huber. “One issue pending is to find a foreign partner to find synergies and improve our performance.”

Dumping

Swiss steel is facing potentially tougher competition as a result of the US decision impose tariffs on steel imports.

Although Switzerland doesn’t export to the US and so isn’t directly affected, Huber fears that Asian countries may begin dumping cheap steel on the European market.

“There may be some pressure on prices because the steel has to go somewhere and that may lead to an oversupply on the markets.”

Swiss Steel is particularly worried that the US action targets companies that produce high value and value-added steel products, just the type produced here in Switzerland.

It hopes the different parties can negotiate an end to the dispute before it degenerates into a full-scale trade war.

swissinfo with agencies