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Luvata cuts outlook but optimistic on US, China

Keywords: Tags  Luvata, John Peter Leesi, copper, Andrea Hotter, China

SANTIAGO, Chile — Global copper fabricator Luvata has lowered its expectations for 2013 sales but remains uncertain how the rest of the year will play out, given signs of optimism from the United States and China, president and chief executive officer John Peter Leesi said.

The company routinely compiles a "market drivers" assessment from various data and customer conversations, weighted by the 40-percent exposure Luvata has to Asia, plus 30 percent to each of Europe and the United States, Leesi told AMM in an interview.

"We saw our addressed market and customer businesses could grow 3.5 percent in 2013, but we have since taken that number down due to developments at the end of 2012 and in 2013," he said.

"China hasn’t recovered as expected and there is no improvement in Europe. The U.S. is actually better than expected, but on balance, we’ve taken down our expectation to 2.5 percent. Our first quarter sales are roughly flat compared with last year, but our order book is coming in reasonably well, so we don’t know where we’ll end the year—the jury is out."

Leesi said he remains "quite positive and optimistic around the U.S., negative around Europe and cautiously optimistic around China."

He said the disappointing market in 2012 had taken the company by surprise following an average annual growth in sales of 19 percent.

"What surprised us in 2012 is that China was weak on the demand side and Europe didn’t improve at all, even if the U.S. was stronger than expected," Leesi added.

The bright spot in the United States is mainly residential construction but commercial construction has picked up recently too, he noted.

Leesi pointed to strength in the architectural billing index (ABI) for both commercial and residential construction, a bellwether for the sector. In China, Leesi said the "positive signs are there" as well for copper demand growth to improve after slowing somewhat last year.

"The biggest surprise to us in 2012 was that shipments of air conditioners in China fell around 15 percent. We’ve never seen negative numbers like that. How can you have GDP of 7.5 percent when air conditioning drops 15 percent?" he said.

"We have some strength in construction, auto manufacturing and infrastructure projects, but we’re still waiting to see this translated into orders of air conditioning equipment. That is not happening yet, which is a bit worrying, and why we are cautiously optimistic," he told AMM.

"We’re a little bit disappointed that we don’t have the order levels we want to have in China yet, but it’s going to get better. We don’t see the growth, but anecdotal evidence suggests it’s coming," he added.

It’s a completely different situation in Europe, where Luvata services mainly the Scandinavian markets in the north and the financial crisis-hit markets like Spain and Italy in the south.

Even here there is a huge polarization: Italy has a lack of credit, which makes it difficult for small and medium-size companies to secure financing, while Spain is trying to deleverage and has no demand for credit, he said.

"Our business levels in Spain and Italy are significantly lower than pre-crisis. It has stabilized on a lower level, and we don’t see any improvement," he added.

Luvata has always sought to invest in niche products in emerging markets, boosting its exposure to Asia from 18 percent to the 40 percent seen today, Leesi said.

To this end, the company recently added new production facilities in China and acquired a business in Brazil.

According to Leesi, in order to live through the problems in Europe, the company is seeking to cut costs and expand its markets.

"We believe Europe will come back, but it’s going to take some time," he said.

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