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Canada Metals Report Q4 2011
Business Monitor International, Nov 2011, Pages: 49
Business Monitor International's 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.
The scenario in 2011 and going into 2012 is a mixed one for the Canadian metals industry. While yearon- year (y-o-y) growth was consistent throughout H111, sales began trending downwards in Q211 with manufacturing and sales of durable goods and primary metals falling month-on-month (m-o-m), although remaining strong compared to the previous year.
Canadian growth is being assisted by strong exports and an improved business environment. The country’s metal production has followed suit as it returns to prerecession levels of industrial output, particularly in crucial metals consuming sectors such as the domestic car industry. BMI believes that with the economy getting closer to potential, and with capacity utilisation being eaten up, and corporate cash and profits still headed higher, there will be increased incentive to invest.
There are, however, headwinds to domestic consumption, including interest rate hikes, inflation reducing disposable income, and the potential for house price moderation or even a downturn. But the underlying fundamentals are still positive, with the labour market improving and, accordingly, real wages beginning to growth more robustly. The most significant risk would be a significant slowdown in the US, which could severely undermine Canadian business confidence, commodity prices and exports, adversely affecting exports of metals and manufactured goods.
Canadian crude steel output will decline 4.6% to 12.41mn tonnes, despite a 6% rise in apparent finished steel consumption to 14.9mn tonnes. This is largely due to the continuing controversial shut-down of US Steel’s Hamilton facility, which is leading to a widening of Canada’s steel trade deficit. The impact of US Steel’s controversial and ongoing shut-downs has been offset in part by Essar Steel’s investment in its Algoma facility.
The aluminium industry is set for long-term growth as a result of capacity expansion at Rio Tinto Alcan’s facilities in Saguenay-Lac-Saint-Jean and Kitimat which together will cost a total of US$1bn. BMI believes that a stronger US market should lead to 2.1% growth in primary aluminium output to just over 3.0mn tonnes in 2011 prompted by 2.5% growth in exports to 2.65mn tonnes.
Over the medium-term, despite capacity expansion growth will be limited by capacity, with output reaching 3.17mn tonnes by 2015, an increase of 6.8% over 2010 levels.
Nickel refining has been undermined by the effects of labour disputes on ore mining activities and 12,200 tonnes of planned finished nickel output was lost due to a shut-down of a facility operated by Vale due to technical problems. Nickel refining is projected to increase 25% to 140,000 tonnes in 2011 with a further 19% increase to 167,000 tonnes in 2012. Production is projected to reach 180,000 tonnes by the end of BMI's forecast period.
A significant risk to this forecast comes from doubts over the commercial viability of Vale’s complex in Thompson with 55,000tpa refining and 60,000tpa smelting capacities.
Canadian zinc production growth in 2011 was undermined by the closure in the previous year of Xstrata’s BMI anticipates 18.1% growth in Canadian zinc consumption between 2010-15 to 176,000 tonnes as the economy returns to full strength, with the domestic market consuming 26% of production, up from 22% in 2010.
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