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United Kingdom Metals Report Q4 2009
Business Monitor International, Oct 2009, Pages: 45
United Kingdom Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the United Kingdom's metals industry.
British primary aluminium production faces complete and permanent closure due to EU regulations, while the steel industry is unlikely to recover to pre-recession levels over the medium-term, warns the latest UK Metals Report.
In the first eight months of 2009, British crude steel output fell 39% year-on-year (y-o-y) to 5.99mn tonnes. In August, output was down 1.8% month-on-month (m-o-m) and down 30.3% y-o-y at 816,000 tonnes. The authors believe that while the British steel industry may have reached a trough, signs of a sustained recovery in output are yet to be seen. Furthermore, our steel output forecasts have been revised down as the UK economy sinks further into recession, with GDP set to shrink 4.2% in 2009 and to stagnate in 2010. The economy will not return to its potential growth level until well into 2011.
The recovery in the British economy is likely to be stronger than previously expected, with the country risk team upgrading the GDP growth forecast for 2010 from 0% to 0.6%, although it still lags behind those of key European peers France and Germany in exiting recession. Growth in H209 is expected to be around zero, with a full-year forecast of -4.2%. The UK’s manufacturing sector will be able to take advantage of a better global trade climate, but the destocking cycle is coming to an end and favourable base effects should start to come into play. This should improve demand for finished steel and primary aluminium in the UK, which this report forecasts will rise 7.8% and 13.3% to 9.35mn tonnes and 716,615 tonnes respectively.
While this report expects the UK’s steel and aluminium markets to return to around 2007 levels by 2013, this may not be enough to ensure the recovery of domestic producers. Aluminium smelting is particularly vulnerable with some commentators predicting the end of primary aluminium production due to the closure of power plants under European Union (EU) directives. The closure of Rio Tinto Alcan’s Anglesey smelter in September 2009, in response to a lack of long-term supply of cheap electricity, will reduce primary aluminium production capacity to 221,000 tonnes per annum (tpa). The authors do not expect output to reach full capacity until 2013, but without Anglesey it will still be 40% down on 2007 levels. Additionally, there is the reduction in secondary aluminium capacity, with aluminium alloy producer F E Mottram (Non Ferrous) Ltd going into voluntary administration in June. In September it was operating at 50% capacity and was not selling output on the spot market. Rio Tinto Alcan’s Lynemouth smelter is also in danger as its captive coal-fired power station may also have to close under the EU’s Large Combustion Plants directive. Smelter closures are unfortunate given the British aluminium industry’s reputation for being highly efficient. The closure of capacity would invariably increase the UK’s reliance on imported aluminium as well as boosting demand for recycled aluminium.
Steel output is set to plunge to levels not seen since the 1970s as the country’s largest steelmaker, Corus, slashes output. In 2008, output was down 5.8% to 13.56mn tonnes, and this report estimates that the decline in output in 2009 will total around 27%, with 9.89mn tonnes of crude steel produced. This is an upwards revision from the 35% decline forecast in the previous quarterly report, due to the stabilisation of production witnessed in Q309 and evidence that the economy was moving towards exiting the recession.
Output should climb by a further 5% in 2010, outstripping demand as the industry feels the benefits of a weak pound sterling exchange rate and imports continue to fall off. Nevertheless, a return to pre-recession levels of crude steel output is unlikely over the medium term, with this report predicting capacity closure and a slow recovery in demand. Much will depend on the construction industry, which has driven growth in the steel industry in recent years.
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