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United Kingdom Metals Report Q4 2010
Business Monitor International, Oct 2010, Pages: 46
The 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.
The British steel industry fell back to recession levels in mid-2010, indicating that the recovery that began in Q409 had run out of steam, according to this latest United Kingdom Metals Report from BMI. Crude steel output grew 13.2% year-on-year (y-o-y) to 5.93mn tonnes in the first seven months of 2010.
However, from the peak of 1.16mn tonnes in December 2009, monthly output fell in subsequent months to well below 900,000 tonnes per month as the pace of recovery slowed and the country’s economy looked set to dip into another recession. In July, production was down by 5.9% y-o-y and 1.4% month-on-month (m-o-m). The flagging performance between January and July comes after crude output slumped 25.6% y-o-y to 10.1mn tonnes and hot rolled output declined 21.6% to 7.5mn tonnes in 2009.
The slump back to recession levels of steel output comes amid a fiscal retrenchment programme, weaknesses in external demand and lacklustre performance in domestic spending and investment. An industry-led recovery, on which the steel industry will depend, will be limited and growth will be largely the result of low base effects in 2009 rather than a fundamental demand-led recovery. External orders for steel are also set to remain subdued across the medium term – particularly, from the eurozone where major fiscal consolidation, weak bank lending and internal devaluations in weaker member economies, will restrict export demand going forward.
While growth will be inevitable due to base effects, we have revised down our crude steel output growth forecast for 2010 from 12.2% to 7.1%, bringing output to 11.29mn tonnes, still 25% below the 2007 peak. In fact, BMI believes that after a further 19.2% growth in 2011, crude output will remain at or below 13mn tonnes, with the potential for permanent idling of some capacity. The situation will be little different further downstream, with hot-rolled production growing 6.7% and 18.4% 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 and will take a further five years before returning to pre-recession levels, provided there is no permanent closure of capacity.
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 facing serious challenges in the years ahead. While we forecast a return to operating rates of 90% of 221,000tpa 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 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.
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