Gloomy figures on steel production in Europe make a strong case for a materials group split

 
Marc Sidwell
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ONE looming breakup overshadowed another for Cookson Group yesterday. The travails of the Eurozone led the industrial materials supplier to warn its full year performance would be below expectations, disappointing those who were looking forward to the conclusion of its strategic review and the potential announcement of a breakup of the group itself into two parts before the end of the year.

Cookson still has two on-target divisions: performance materials (for electronics) and precious metals processing. The world’s healthy demand for electronics and assorted upward price pressures on precious metals should respectively augur well for each continuing to perform well. But these only accounted for 37 per cent of revenue between them in the first half of 2012.

The group’s engineered ceramics division, on the other hand, accounted for the other 63 per cent of revenue and 61 per cent of trading profit in the first half, before a rough third quarter set it back, mainly thanks to collapsing steel production volumes in Europe in July and August – down 11 per cent, according to the World Steel Association. The division’s fortunes aren’t helped by its exposure to the alternative energy industry, both solar, through its fused silica business, and wind turbines, through its foundry business. Yesterday’s shale gas tax announcement from the chancellor was a reminder of one ongoing disruption to the economic viability of green energy.

With no end in sight for Europe’s woes, the US in the doldrums and intimations of a Chinese slowdown, the prospects for steel demand aren’t great. But that also means the case for splitting Cookson’s better-performing units starts to look more compelling. Watch this space.