European Operations

Lucchini is the second largest steel group in Italy, and one of the largest European producers of special quality steel long products by volume of production.

Lucchini has 4.0 million tonnes of annual crude steelmaking capacity, serving more than 1,000 customers in niche markets such as automotive, rails, bearings, springs and wire rod.

In 2009, we produced 1.7 million tonnes of crude steel. Sales revenues in 2009 were US$1,757.1 million and EBITDA was negative US$202.8 million. Lucchini operates two principal businesses: Piombino in Italy and Ascometal in France.

Lucchini Piombino, Italy

Piombino is a European leader in long specialty steel products, including round bars, rolled blooms, billets and slabs. It is also a leading Italian producer of high-quality wire rod (including drawing wire rod, cold heading steel and welding steel) and rails.

Piombino's European market share is approximately 20% and its Italian market share for rails and rail stocks is 80%, based on Eurofer data.

The Company’s main production facilities include plants in Piombino, Trieste, Bari, Condove and Lecco (all in Italy) with headquarters in Brescia, Italy. At the end of 2009, Piombino had 2,925 employees (full-time equivalent).

Lucchini Ascometal, France

Ascometal is a European leader in long special steels. It operates four integrated EAF-based mills, two cold finishing centres and a distribution centre in France. Its facilities are strategically located near scrap collection and processing centres. Its headquarters are in Paris, France. At the end of 2009, the Company employed 2,481 people (full-time equivalent).

Key performance indicators

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Production results

In 2009, Lucchini produced:

1.75 million tonnes of crude steel.
1.42 million tonnes of hot metal.

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Sales and marketing

Economic environment

The decline in global markets had a major impact on the Italian and European economic climate throughout 2009, leading to a deep economic recession. In 2009, Italian GDP fell by 4.6% and private consumption decreased by 1.2%. Capital investments were significantly reduced by 11% while industrial production literally collapsed, falling by 14.7%. At the end of 2009, the persistent negative trend seemed to be stabilising. The sharp decline in industrial activity has frozen inflationary pressures, leading to a rise of 0.7% in 2009 compared with 3.3% in 2008. At the same time, unemployment rose to 9.2% in the European Union.

Trends in the steel market

The impact of the negative economic climate was exacerbated by companies, all of whom preserved liquidity by drastically reducing the level of inventories throughout the supply chain. This trend caused the virtual disappearance of apparent consumption in the first half of 2009, during which time the steel sector experienced serious difficulties in managing the continuity of industrial production processes, even at levels of minimal activity.

From summer 2009, once inventory levels were reduced, apparent consumption gradually realigned to actual consumption, leading to an improvement in orders and a more balanced industrial set up. In the European Union, apparent consumption fell by 33.4% compared with the previous year.

The wire rod trend for Lucchini was in line with general trends in the steel sector. After the first half of 2009, characterised by low volumes and falling prices, the second half saw a slight and gradual recovery in volumes, with prices becoming basically stable.

Bars suffered most of all, and have not yet shown signs of recovery. This product is linked mainly to the automotive industry and tied to some other segments, such as earth moving equipment and mechanical engineering. So it was severely affected by the recession, the recovery from which remains strictly tied to the dynamics of recovery in capital goods.

The rail sector remained at optimal levels throughout the first half of the year due to:

The demand for new infrastructure in emerging economies.
The backlog that had been contracted before the market decline.

Sales by product

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Lucchini’s total sales volume of 1.94 million tonnes was 41.2% lower than in 2008. Revenues decreased by 56.0%, mainly as a result of the global economic downturn.

Long products sales revenue decreased by 62.1%, and volumes fell by 46.7%. These revenues accounted for 54.5% of Lucchini’s total revenue in 2009, compared with 63.4% in 2008.

Sales volumes of semi-finished products (excluding hot metal and pig iron) were 36.9% lower in 2009 than in 2008. At the same time, sales revenues of semi-finished products decreased by 60.8% and currently account for 11.4% of Lucchini’s total 2009 revenue. Sales volumes of rails decreased 16.1%, while revenues fell 12.5%. Rails accounted for 13.9% of Lucchini’s total 2009 revenue, compared with 7.0% in 2008.

The majority of Piombino’s deliveries in the year were to the railway, construction and steel processing industries. Other important customers were automotive and machine building companies.

In Europe, demand for special steel bars decreased by 50% with a severe downturn starting in the second half of 2008. Ascometal’s global sales fell by 50% in volume and 57% in revenue.

New car registrations in Europe decreased 1.6% and car production decreased by 18%, leading to unprecedented destocking and reduced production throughout the industrial chain. Original equipment manufacturers, forging, bearings and spring subcontractors were all affected by the economic situation. Because of this, Ascometal’s tonnage sales to the automotive industry fell by 40% compared with 2008.

Sales by industry

Sales of bearings fell by 50%, due to the negative impact of economic conditions for non-automotive applications.

Sales to the mechanical and machine building industries fell by 63% in volume, as end markets faced sales decreases of 20% to 80%.

Sales to the railway segment fell by 25% in volume – a relatively good performance in view of the economic crisis, thanks to an only mildly affected end market.

In the oil drilling segment (other), market conditions deteriorated throughout the year. Our sales fell 60% in volume and 11.2% in revenue, as a result of the combined effect of destocking throughout the industrial chain, low final demand, and adverse USD/EUR exchange rates.

Key markets

Lucchini has more than 1,000 customers in its main markets in Italy, France and Germany. It sells its Piombino products primarily in the Italian domestic market and nearly half of its Ascometal products in the French domestic market.

Lucchini’s main objectives are to maintain and strengthen its cost leadership position in Italy and Western Europe, and to pursue new, high-growth markets such as Eastern Europe and the Far East.

With commercial offices in Zurich, Barcelona, New York, Singapore, Dusseldorf and Manchester (UK), Lucchini exports its products to more than 60 countries.

Sales by market, Lucchini

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Capital expenditure

Neither Piombino nor Ascometal implemented any big capital projects in 2009.

Lucchini’s total 2009 capital expenditure of US$133.2 million was 60.6% lower than in 2008 (when it was US$337.8 million). Taking into account the global economic decline in 2009, we suspended or rescheduled most projects and continued with only a small number of initiatives, relating mainly to environmental impact and compulsory maintenance activities.