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South Africa Metals Report Q1 2010
Business Monitor International, Dec 2009, Pages: 53
South Africa Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Africa's metals industry.
With output at its lowest level in over a decade, it is imperative that the metals sector in South Africa diversifies its production and adjusts to trends in global demand. Statistics provided by the South African Iron and Steel Institute (SAISI) indicate that the alarming rate of decline in production that occurred at the end of 2008 has continued though 2009. While there are signs of recovery in the global mining sector, the South African metals sector is still very much struggling with an unprecedented downturn. Indeed, BMI believes that steel production will decrease by 20% in 2009 and will not revoer to 2008 levels until 2012. General production and business conditions within the South African metals market have been slow during Q409, and coupled with a strengthening currency, the country will take longer to shake off the effects of the recession. With domestic demand expected to remain constrained as the South African economy struggles to recover, much of the activity is likely to be driven by export demand. The evidence is growing that the global economy is on the mend, with prices and volumes of many commodities getting a boost. Overall, the forecast seems rather negative in the short term, with analysts predicting South Africa’s metal recovery to lag behind that of more stable economies.
For example, the aluminium sector in South African is likely to come under greater pressure as reports suggest that production costs at most smelters are now below London Metal Exchange prices. This comes at a time when numerous producers in regions such as the Middle East, India, and Russia recording positive profit margins – further reducing the chances of production being slowed down. A factor sure to hinder production in South Africa is the current energy crisis hitting the state’s energy provider, Eskom. While this provider is coming under increasing pressure to meet energy demands, utilities in key aluminium producing regions like Russia are generating electricity from relatively low-cost hydro sources. This, coupled with low operating costs at sites in regions such as the Middle East, have further hindered the chances of South Africa making an impact upon the aluminium market, especially in the short term.
Nonetheless, industry analysts from banking firm Investec have pointed out that the metals market in South Africa is largely linked to the pace and trend of other global markets. This is encouraging, as globally the metals industry is thought to be nearing the end of its destocking process, and many believe that demand for commodities such as base metals will again surge. According to the World Steel Association, Chinese steel output will rebound 19% in 2009 and 5% in 2010, which will provide strong opportunities for South African exporters.
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