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Canada Metals Report Q1 2011
Business Monitor International, Feb 2011, Pages: 47
The Canada Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Canada's metals industry.
In 2010, Canadian aluminium shipments totalled around 138,000 tonnes, up 18% year-on-year (y-o-y), while steel product shipments totalled 5.76mn tonnes, up 15% y-o-y, according to BMI estimates. By December 2010, aluminium inventories were the equivalent of 2.5 months supply at the current shipping rates at 31,000 tonnes, up 16.5% y-o-y, while steel inventories were up 30.4% y-o-y to 1.3mn tonnes, also the equivalent of 2.5 months supply. Inventory levels were easing, indicating a tightening of the market. BMI estimates that crude and hot-rolled steel grew 47% and 46% to 13.92mn tonnes and 13.55mn tonnes, respectively.
Canada reported that Canadian factory sales totalled US$45.5bn in October 2010, a 1.7% increase over the previous month. The performance was partly attributed to gains in the primary metal industries, which posted sales growth of 5.8% month-on-month (m-o-m) to US$3.8bn due to higher volumes and prices. In Q310, Canadian industrial production was operating at 78.1% of capacity, up from 76.9% in Q210, with machinery manufacturing capacity utilisation at 85.4%, fabricated metals products manufacturing capacity utilisation at 76.7% and construction capacity utilisation at 71.8%.
Rio Tinto’s recently announced plan to invest US$1bn in expansion and upgrades at its aluminium smelter operations in Canada is encouraging news, indicating that the sector will not only maintain current capacity but will enjoy growth in the long term. Rio will spend US$758mn on the first phase of a new aluminium plant in Quebec and has committed US$300mn to prepare for a larger US$2.5bn upgrade at the firm’s Kitimat smelter in British Columbia. The first phase of the proposed Saguenay-Lac-Saint- Jean plant will have 38 pots and a production capacity of 60,000 tonnes per annum (tpa) of aluminium by 2013 with possible future phases bringing capacity to 460,000tpa. At Kitimat, Rio is preparing for a modernisation project that will increase the smelter’s current production capacity by more than 48% to around 420,000tpa and will be powered by hydroelectricity, making it one of the lowest cost smelters in the world.
The situation seems more uncertain in the steel industry. The impact of US Steel’s controversial ongoing shut-downs should be offset in whole or in part by Essar Steel’s investment in its Algoma facility. Here, one blast furnace has already been brought up to operational capacity of 2mn tpa and a second furnace is due to come online when the steelmaker judges that the North American market has returned to normal.
However, lay-offs by Essar announced in late 2010 due to bad market conditions indicate that the second furnace will not be restarted any time soon. As such, crude and hot-rolled output will not return to prerecession levels until around 2014-15. BMI projects crude output of 15.68mn tonnes and hot-rolled output of 15.03mn tonnes in 2015.
The momentum of export growth to the US is likely to slow in 2011, a situation not helped by the strength of the Canadian dollar against the US dollar, protectionism by the US government and lingering uncertainties facing the Canadian manufacturing sector.
BMI anticipates the dollar remaining around parity with its US counterpart throughout 2011, and remaining not far from that level over the next few years (including an average of CAD1.09/US$ in 2011). Although growth levels are likely to be lower – as the industry was already close to pre-recession capacity utilisation levels by end-2010 – BMI is optimistic about the prospects for metals industries in 2011.
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