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South Africa Metals Report Q1 2011
Business Monitor International, Dec 2010, Pages: 48
Business Monitor International's 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.
South African metals producers will face slower rates of growth over the medium term, but the recovery in 2010 will be sustainable, according this latest South Africa Metals Report from BMI.
In 2010, BMI estimates that crude steel output will grow 13.6% year-on-year (y-o-y) to 8.5mn tonnes and hot-rolled output 13.4% to 6.2mn tonnes, boosted by the economic recovery and export growth. South Africa represents 50.9% of total African crude steel output, with all the other major producers located in North Africa. These increases reversed most of the losses of 2009, although overall capacity utilisation rates are still low and margins are poor. It will take until 2014 for the South African steel industry to exceed its peak 9.72mn tonnes production in 2006 and BMI forecasts output exceeding 10mn tonnes again for the first time in 2015. However, rising domestic electricity prices and a strongly priced rand will undermine competitiveness in the South African metals industry and present downside risks.
Some segments are more promising than others, but dependent on the market trends in Asia. South African ferrochrome prices were on the rise from end-2010 due to a bullish stainless steel market leading to shortages, as well as a strong rand, higher power costs and problems relating to labour disputes and transportation. Although ferrochrome prices in Q410 were less than half the level seen before the economic crisis of September 2008, high trading levels have prompted analysts to forecast a bullish market in 2011 and a swift return to pre-crisis levels by mid-year. China and India’s growing steel industries are driving global ferrochrome demand. In terms of domestic stainless production, BMI’s forecasts for South African output remain bullish following an anticipated record year in 2010 – recovery is likely to be sustained throughout 2011 and 2012.
While stainless steel looks set for growth despite high costs and the strong rand, other segments are likely to show slower growth. Rebar grew by an estimated 7.8% in 2010 to a forecast 704,000 tonnes with output tailing off in H2, although healthy construction activity in the run-up to the 2010 FIFA World Cup ensured construction-related material did not experience the level of decline seen in other segments.
Aside from lower rates of construction activity, producers will also face capacity constraints and lower priced imports, thereby limiting growth. As we expect construction activity to die down following the World Cup, we believe construction industry growth will even out at 3-4% per year through to 2015. This represents a slowdown in the industry compared with recent years, with average growth of 11.5% y-o-y between 2005 and 2008. A dearth of new infrastructure projects, coupled with a decline in residential building activity has been cited as the cause of the slowdown. Despite a massive infrastructure investment plan (ZAR846bn/US$113bn), the speed at which it will be implemented is causing concern over future demand for long steel and aluminium products, as the three-year timeline (2010-2012) looks unlikely to be met.'
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