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Australia Metals Report Q1 2012
Business Monitor International, Jan 2012, Pages: 67
Business Monitor International's Australia Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Australia's metals industry.
Latest data suggest that the rebound seen in H111 weakened significantly in the second half of the year.
Indeed, slower real GDP growth in several key economies, combined with higher levels of market volatility have seen both production and consumption weaken in Australia. Moreover, our macroeconomic outlook for the Australian and Chinese economies has been tempered somewhat following both deteriorating trading conditions as well as slower growth following monetary tightening cycles over the past few quarters. For some metals we believe output will have contracted in 2011 and forecast only a weak recovery in 2012.
Latest data confirms our view that Australian steel production will decline for the full year. According to Worldsteel, steel output fell by an average of 9.1% in the three months to October 2011, which dragged steel production in the first ten months of the year down 3.8% year-on-year (y-o-y). This is broadly in line with our full-year forecast for a 5% decline in steel production to 6.67mn tonnes in 2011. On a monthly basis, monthly production has fallen to an average of 585kt ('000 tonnes), down from the monthly average of 608kt in 2010. Looking to the immediate future, to 2012 we only see a small rebound in output of 3.0%, as we expect macroeconomic headwinds as well as micro-level dynamics to weigh on the sector.
Morever, we see some downside risks to our forecasts, particularly as base effects from the first few months of the year affect y-o-y growth rates in Q112. The poor performance of the steel sector will continue to have two main implications. First, there are serious risks to the recovery of the domestic steel market and this will lead to continued overcapacity. This in turn could continue to impact profitability at the major steel producers. Second, it will take longer for output to surpass pre-crisis levels over the forecast period, which we only see happening after 2016.
Despite a rebound in Q111 zinc output, the pace of production has slowed with data for the first nine months of the year showing only meagre output growth. The World Bureau of Metals Statistics (WBMS) reported an negligible increase of 0.3% y-o-y in slab zinc output over the period. Nyrstar reported that its smelters were operating at capacity, but this will have been insufficient to make up for the loss in output at the beggining of the year. Meanwhile, no data has been released for Sun Metals' Townsville smelter (owned by Korea Zinc).
We have revised down our forecasts for Australian refined aluminium production in 2011, but have left the 2012 forecast unchanged. Indeed, we now see growth of 0.7% in 2011, down from 3.0% previously. For 2012 we maintain our forecast of 1.5% growth. Australian aluminium consumption also remains weak and we have revised down our consumption forecast for 2011 to 1.0% from 2.0% previously. We have revised down our forecasts for output in 2011, in line with the downside risks we mentioned last quarter. We now expect production to decline by 1.0% in 2011, down from our previous growth forecast of 3.0%.That said, annual average growth should come in around 3.0% over the forecast period to 2016, reaching 129kt. Consumption of refined nickel was broadly flat in 2011. We forecast an average growth rate of 2.2% a year to 2016.
Latest data from the WBMS suggest that Australia's refined lead production expanded by 24.3% y-o-y in the first nine months of 2011. This is in sharp contrast to the data provided for the first six months as well as the data from Nyrstar, which owns the largest lead smelter. Nyrstar's Port Pirie reported a decline of 11.0% y-o-y in Q311, and this was following poor performance in previous quarters. The weak result was largely on the back of slower throughput associated with the consumption of more complex concentrates. Despite the mixed data, we maintain our forecasts for a decline in output of 8% in 2011, and expect a strong rebound in 2012.
The majority of Australia's refined metal output is for export, with Asia and particularly China accounting for the largest share. We therefore assign downside risks to our forecasts on the back of an expected slowdown in Asia's economic growth in 2011 and 2012. Moreover, domestic demand for Australia's refined metal production is dependent on the country's economic growth rate, and we forecast modest growth until 2016, as the economy gradually recovers from recession. However, any reduction in the growth rate would have a detrimental effect on the consumption of metals.
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