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South Korea Metals Report Q4 2011
Business Monitor International, Nov 2011, Pages: 56
Business Monitor International's South Korea Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Korea's metals industry.
BMI’s latest South Korea Metals Report highlights that 2011 has seen a continuation of the growth seen across all sectors in 2010 as well as a revival in construction. Imports from Japan are being limited by the strong value of the yen, which has protected domestic metals producers to some extent and enabled them to benefit from growth in domestic demand.
Planned construction of 10mn affordable houses in 2011 is expected to maintain demand for constructionrelated metal products at close to record levels. Consumer goods consumption, which benefits copper wire and aluminium packaging, should be stimulated by the fall in unemployment, although growth could be constrained by rising inflation. Exports play a crucial role in South Korea’s production of metal products. The export environment is contingent on the effects of the Japanese tsunami and the slowdown in China.
South Korean steel output grew 20.3% year-on-year (y-o-y) to 45.03mn tonnes in the first eight months of 2011. Steelmakers' earnings are set to be further squeezed as record Chinese output negatively affects South Korean margins. High prices of iron ore and coking coal, which jumped 25-50% quarter-on-quarter (q-o-q) in Q211, are unlikely to be reversed.
BMI expects the steel market to bottom out in Q411 and gradually improve in 2012. POSCO said its 2011 crude steel output would rise by 10% to 37.1mn tonnes, while sales will rise to KRW39.9trn, up 22.4% y-o-y. Based on H111 trends and H211 projections of average monthly output of around 5.4mn tonnes, down from 5.6mn tonnes in H111, BMI forecasts 12.8% growth to 65.9mn tonnes in 2011. This is big reduction from the 72mn tonnes previously forecasted, and BMI acknowledges the impact of the global economic slowdown on steel-consuming industries.
Domestic consumption of finished steel products is forecast at 57.24mn tonnes, an increase from the 55.12mn tonnes in the previous report due to higher than expected consumption figures for 2010. BMI retains its forecast of 26.6mn tonnes of semi-finished and finished steel exports, an increase of 8% y-o-y. Exports will be encouraged, not just by the effects of the Japanese earthquake, but also by growth in demand from India as well as the expansion of the supply chains of Korean steelmakers such as POSCO and Hyundai Steel. BMI forecasts a 12.6% decline in imports to 21.7mn tonnes due largely to an increase in domestic supply. Hot-rolled output is also set to rise 12.7% to 66.5mn tonnes.
South Korea has no primary aluminium smelting capacity and relies on imports and recycling for its aluminium supply. The country’s automotive industry should sustain strong rates of aluminium consumption growth, with demand reaching 1.8mn tonnes by 2015, an increase of 44% over 2010.
South Korea is Asia’s third-biggest consumer of copper, with consumption estimated at just over 1mn tonnes in 2010 and a further 3.0% growth forecast in 2011 to bring demand to 1.04mn tonnes, boosted by domestic demand in the construction and consumer goods sectors. In 2010, it imported an estimated 540,000 tonnes of refined copper, up 8% y-o-y, and imports are likely to grow by 2% to a record 551,000 tonnes in 2011. Coupled with the likely decline of growth in copper-consuming sectors, BMI anticipates annual growth in the region of 1.3-1.5% over the 2012-15 period.
Lead refining is forecast to rise 6.8% to 268,000 tonnes in 2011, close to full operational capacity, as consumption surges 21.2% to 309,000 tonnes – due in large part to the rise in automotive output. Meanwhile, trends in construction will determine capacity in the zinc sector with refining likely to see steady growth and output to reach 715,000 tonnes (up 1.1% y-o-y). Consumption will hit 487,000 tonnes (up15% y-o-y) in 2011, which will reduce exports by 18.7% to 278,000 tonnes.
Nickel refining will increase 25% in 2011, as a new refinery in Gwangyang increases to full capacity, but there are concerns about a disruption in ore supplies from New Caledonia as well as reduced use of nickel in batteries for hybrid vehicles – which could squeeze South Korean production. Nevertheless, production will be insufficient to cover domestic consumption, with annual nickel imports set to grow 22% in 2010- 15 to 71,000 tonnes.
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