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United States Metals Report Q1 2011
Business Monitor International, Feb 2011, Pages: 49
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 United States' metals industry.
Following a year of strong growth in 2010 due to low base effects and government stimulus measures, the US aluminium and steel industries will experience a period of low growth in 2011 as federal spending is limited and the economy experiences stagnation, according to this latest US Metals Report from BMI.
In 2010, US crude steel output grew 37.9% year-on-year (y-o-y) to 80.39mn tonnes while primary aluminium production fell 0.3% y-o-y to 1.72mn tonnes, according to BMI estimates. Steel suffered from weakening market conditions in H210, which caused domestic crude steel output to fall 3.4% compared with H1, although output was still up 16.5% y-o-y. The moderation in demand conditions impacted more on steel imports, which saw a falling trend in Q410, although on a y-o-y basis import growth was still strong, with total imports of semi-finished and finished steel growing 40% to 22.4mn tonnes for the whole year.
While aluminium performance was disappointing, in contrast to steel there were improvements in output in H210 with growth of 9.4% in Q3 and 6.9% in Q4. The improved performance did not return the industry to anywhere near pre-crisis levels, with monthly production a third down on 2008 averages. Output should strengthen in 2011 as smelters are brought back online. Alcoa announced in January 2011 that it would restart idled potlines at three aluminium smelters in the US, increasing production by 137,000 tonnes over 2011 and 200,000 tonnes annually thereafter. The restarts should be completed during H111, but Alcoa will still have 674,000 tonnes per annum (tpa) of idle capacity remaining. US aluminium producers will be wary of probable reversals in China’s policy of cutting back production to meet year-end energy saving targets. The best the US can hope for is that the Chinese market will recover enough to be in a demand-supply balance, but this will still put the rest of the world in surplus and could mean the prolonged closure of some smelting facilities.
The automotive and construction sectors will continue to influence the prospects of the US metals industries. The effects of the two-year US$787bn American Recovery and Reinvestment Act (ARRA) will continue into 2011 due to the impact of slow global growth and austerity measures, but although construction is forecast to grow 2.2% in the year, most of the growth will be concentrated in the first half. This in turn will have an impact on long steel consumption, which could stagnate or even contract in H211. BMI notes that the drive towards fuel economy will result in light-weighting of vehicles, which will see steel substituted for aluminium in parts and components. At the same time, the increased utilisation of aluminium will push up the cost of car production with a likely impact on output growth. Consequently, the effects of substitution may be a significant reduction in flat steel consumption by the automotive industry, but little or no growth in overall aluminium use.
The upshot will be low levels of consumption and production growth in both steel and aluminium. BMI forecasts crude and hot-rolled output growth of 1.4% and 1.2% in 2011 to 81.55mn tonnes and 80.78mn tonnes respectively in 2011, while finished steel consumption should grow 1.6% to 92.24mn tonnes. In the aluminium sector, which lagged behind steel in 2010, there should be stronger growth, with resumption of production at Alcoa’s facilities as well as some minor producers should see combined primary and secondary aluminium production rise 10.3% to 2.95mn tonnes. However, in both sectors, it will be some years before production returns to normal with little hope that rebar, heavy section and wire rod will reach 2008 levels by 2015.
A poor structural market, combined with uncertainty and fears of the impact of a double-dip recession on the housing market, have dented medium sections and beams and rebar, with no likelihood of a pick-up in transaction prices until H211 at the earliest. Lingering troubles in the automotive industry have ensured it will take until 2015 before combined aluminium output reaches 2008 levels.
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