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United States Metals Report Q3 2010
Business Monitor International, July 2010, Pages: 53
The United States 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 States' metals industry.
The recovery in British steel production that built up in Q409 appeared to slip away in H110. Crude steel output grew 19.5% year-on-year (y-o-y) to 4.29mn tonnes in the first four months of 2010. However, from the peak of 1.16mn tonnes in December 2009, output fell in subsequent months to below 900,000 tonnes per month. In May, production was up just 1.6% y-o-y and down 7.6% m-o-m. The flagging performance between January and May comes after crude output slumped 25.6% y-o-y to 10.06mn tonnes and hot rolled output declined 21.6% to 7.46mn tonnes in 2009.
The decline in the value of the euro against the pound sterling has not helped the competitiveness of British steelmaking, while the domestic market is sluggish and uncertain. Austerity measures introduced by the new coalition government have compounded the uncertainties facing the industry, with fears that reduced spending will depress steel demand. While the UK has finally returned to positive growth, we warn that the recovery remains extremely fragile, with risks weighted to the downside. In particular, our biggest concerns are the potential for fiscal consolidation to drive a double-dip recession with the removal of stimulus measures and the extensive budget cuts which will likely dampen demand going forward. These factors could even risk tipping the economy back into recession.
While growth will be inevitable due to base effects, it is forecast at 12.2%, bringing output to 11.29mn tonnes, still well below pre-recession levels. In fact, BMI believes that after a further 14.1% growth in 2011, crude output will remain at or below 13mn tonnes with the potential for some permanent idling of capacity. The situation will be little different further downstream, with hot-rolled production growing 11.8% and 13.2% in 2010 and 2011 respectively, before holding at around 9.5mn tonnes. The worst affected segment will be rebar, which we believe will grow just 4.6% to 519,000 tonnes in 2010.
The primary aluminium sector is in a poor state, with output plummeting 60% to just over 130,000 tonnes in 2009. The collapse was a result of the country’s industrial sector grinding to a halt in the first half of the year while in the second half national capacity was drastically cut to 221,000 tonnes per annum (tpa) with the closure of the Anglesey smelter in response to a lack of long-term supply of cheap electricity. The British aluminium industry is faced with serious challenges in the years ahead. While we forecast a return to operating rates of 90% of capacity from 2011, this is weighed down with negative risk with the very real prospect of one or both of the country’s smelters closing amid adverse market conditions. The previous government had pledged to reduce the climate change levy rebate for companies in energyintensive industries who are participants in the climate change agreement from 80% to 65% from 2011. As of June, it was unclear how the new coalition government would pursue policy. The Conservatives, the larger partner in the government, had promised to reform the ‘ineffectual’ climate change levy ‘so that it is more closely linked to carbon emissions in order to provide the right incentives for investment in low carbon technologies’. Just what this means for aluminium smelting is unclear, particularly under a new and more austere fiscal regime, but BMI does not believe the industry will get any more lifelines from the new government.
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