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Australia Metals Report Q2 2010
Business Monitor International, March 2010, Pages: 65
The Australia Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Australia's metals industry.
While the Australian metals industries are well on the way to recovery, environmental regulations and Asian over-capacity are major threats to growth over the medium-term
In 2009, Australia crude steel output fell 31.2% year-on-year (y-o-y) to 5.25mn tonnes. However, towards the end of 2009, industry activity began to pick up. In Q409, output grew 22% q-o-q to 1.83mn tonnes, a rise of 12% y-o-y. While the economic recession had dented metals demand, the long-term outlook for commodities is still strong, with many Australian blast furnaces returning to full capacity in Q110. Meanwhile, BHP Billiton reported 20% y-o-y growth in Q409 nickel production due to a record performance from its Nickel West operation in Australia. The Kalgoorlie nickel smelter achieved record quarterly production following the major furnace rebuild a year earlier. Industry observers are confident that the Australian metals industry will return to peak condition within the next three years. This largely ties into the reports projection for crude steel output to return to 7.57mn tonnes in 2014, the same level achieved in 2008.
Industry experts and analysts feel that although the recovery with regards to investment in the base metals sector will be slower than other commodities, the long-term outlook is solid. This is further backed by indications of rapid steel-intensive growth in emerging markets such as China, although this will be accompanied by rapid expansion in indigenous capacity. The publisher believes that Australia’s steel exports will reach a value of US$1.41bn in 2014, up 3% from US$1.37bn in 2008, with volumes rising 5% over the period.
Meanwhile, domestic confidence is growing. Australian steelmakers Bluescope and OneSteel both reported improvements in H209. Recovery is slow but will be stimulated by Australia’s multibilliondollar provision for infrastructure projects. Combined, the government has pledged more than US$45bn to infrastructure over the 2009-2011 period. Despite the high level of public investment in infrastructure, the private sector has proved weaker than we had earlier estimated.
As a result, we have revised our estimates and forecasts to a moderately more bearish scenario this quarter. We now estimate that real growth in Australia’s construction industry registered a contraction of 2.9% in 2009, compared with our previous forecast (made last quarter) of -0.8%. We now believe that the sector will undergo a contraction of 2.1% in 2010, compared with our earlier forecast for real growth of 0.3%. We then expect a recovery to a real growth rate of 1.6% for the sector in 2011, before a gradual acceleration across the remainder of our forecast period to 5.5% in 2014. A prolonged contraction in the construction sector will mean lacklustre domestic demand for longs products, forcing Australian producers to look overseas for growth. Yet, construction activity in export markets will also be slow to pick up pace. Consequently, a revival in Australian steelmaking will be reliant on exports of billet to supply foreign rollers and domestic flats production for industries such as the automotive sector, which is expected to revive in 2010. Aside from the downturn in demand, Australian metals production is faced with heightened risk from a stricter regulatory environment. A carbon emissions trading scheme aims to cut emissions by between 5% and 15% by 2020. Australian aluminium smelters are reliant on power supplies from coal-based power stations, some of which are based on heavily polluting brown coal. If a price is put on carbon, coal-based aluminium production would lose competitiveness to smelting that uses hydroelectricity or gas-based power generation, which has far lower emissions. This would speed up the shift in Australian smelting capacity from high emissions sources to low emissions sources as seen with new smelting operations in the Middle East.
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