Strategic and business risks

Strategic risks for Outokumpu are related to the company's business portfolio, the market situation and major investments. Business risks are connected with the company's operating environment, customer behaviour and the economic outlook. Volatility in demand has an almost simultaneous impact on all or almost all strategic and business risks.

Structural overcapacity in stainless markets

Demand for stainless steel remained depressed in Outokumpu's main markets in 2009. Increased stainless steel production capacity, especially in China, has led to gradually developing global overcapacity, while lack of demand in Europe has resulted in regional overcapacity. Consequently this development has led to global overcapacity in stainless steel production, and this could limit the Group's growth. Actions taken by Outokumpu to address overcapacity in production include improving cost-efficiency and delivery reliability in the Group's operations, developing distribution channels and increasing sales to end-users.

Eurocentricity of operations

Although Outokumpu's sales and distribution network is global, the company's main production facilities are located in Europe. Outokumpu's main market area is also Europe, and depressed levels of demand have had a major impact on stainless steel markets. Minor changes in price levels, periodic demand growth or currency rates in specific market areas and regions can also affect Outokumpu's competitive position and financial performance. Outokumpu has identified operations that are overly Eurocentric as a possible risk to the Group's strategy implementation, even though Eurocentricity can also be seen as an opportunity. Ensuring profitable business operations in Europe requires the company to have a strong foothold with cost-efficient, local operations. Outokumpu will study ways of strengthening its position outside Europe.

Competition in stainless steel focused on the Asian market

As growth prospects for stainless steel demand are better in Asia than in Europe, a lot of new production capacity has been built in the region. These significant investments have resulted in cold rolled stainless steel production capacity in China currently exceeding demand. As high levels of stainless steel capacity among Asian producers currently exceed demand from their domestic markets there is a risk that this overcapacity will also affect European markets. While Asian producers are competitive in standard products and basic offerings, business opportunities for Outokumpu in special products and service offerings in Asia are likely to remain. In 2009, Outokumpu expanded its operations in China by investing in a new service centre facility in Kunshan, Shanghai, which will focus on special products and grades.

Continuing weak market situation

As the global economic downturn had a clear impact on stainless steel demand, the market for stainless steel remained weak during 2009. Visibility regarding market development was poor during the first half. If challenging global economic conditions continues long, the weak market situation will have an impact on both demand for stainless steel and on prices. Outokumpu has made preparations for a market of this type with readiness plans, operational action to reduce fixed costs, and cost savings programmes. Concerns about related risks resulted in Outokumpu postponing major investment projects in 2009.