Swedish cutting-tool producer Sandvik is heading for swelling losses as declining volumes and nonrecurring costs put pressure on the company’s earnings.

Sandvik, a high-technology engineering group, expects earnings to diminish due to weaker demand and costs to scale back production capacity and inventories, the company wrote in a statement on Wednesday.

“The current market situation is very weak, which has a substantial effect on a business like Sandvik’s”, said Lars Pettersson, President and CEO of Sandvik.

During April and May Sandvik’s intake rate gradually declined 40 – 50 percent while invoicing in terms of volume declined to a level 30-40 percent lower than the year-earlier period.

As a result, an operating loss of between 2,200 and 2,500 million kronor (€210 - 238) is expected to be posted for the second quarter, of which underlying result amounts to about -1,000 million kronor including effects of changed metal prices of about -350 million kronor.

In order to avoid increased obsolescence, Sandvik will further reduce inventories. Accordingly, the production rate has fallen below the rate of order intake by about 10 percent during the second quarter.

“Implemented and approved actions will have a gradual effect, but the weak volume trend in the second quarter and probably also the third quarter will have a significantly negative effect on earnings”, Lars Pettersson said. “At the same time, it is satisfying that the favorable trend in cash flow, inventory reductions and demand in parts of the energy sector that we observed in the first quarter are continuing”.