Australia Metals Industry Update Quarter 2 2012

  • January 2014
  • -
  • Business Monitor International
  • -
  • 63 pages

Includes 3 FREE quarterly updates

Latest data suggest that the rebound seen in H111 weakened significantly in the second half of the year.
Indeed, slower real Gross Domestic Product growth in several key economies, combined with higher levels of industry
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 projection 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. In 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 segment . Morever, we see some downside risks
to our projections, 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 segment will continue to have two main implications. First,
there are serious risks to the recovery of the domestic steel industry and this will lead to continued
overcapacity. This could continue to affect profitability at the major steel producers. Second, it will take
longer for output to surpass pre-crisis levels over the projection 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 2011 showing only meagre output growth. The World Bureau of Metals Statistics (WBMS)
reported a 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 beginning of the year. Meanwhile, no data has been released for Sun Metals' Townsville smelter
(owned by Korea Zinc).

We have revised down our projections for Australian refined aluminium production in 2011, but have left
the 2012 projection unchanged. We now see growth of 0.7% in 2011, down from 3.0% previously. For 2012
we maintain our projection of 1.5% growth. Australian aluminium consumption remains weak and we have
revised down our consumption projection for 2011 to 1.0% from 2.0% previously.
We expect refined nickel production to have increased by 5.5% in 2011, up from our previous projection of
3.0%. We continue to highlight that annual average growth should come in around 3.8% over the projection
period to 2016, reaching 137kt. Consumption of refined nickel has shown a 2.0% y-o-y increase in 2011.
We projection an average growth rate of 2.8% a year until 2016.

Latest data from the WBMS suggest that Australia's refined lead production grow ed 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. Indeed, Nyrstar's Port Pirie reported a
decline of 11.0% y-o-y in Q311, and this followed a poor performance in previous quarters. The weak
result was largely on the back slower throughput associated with the consumption of more complex
concentrates.

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 projections 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 projection 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.

Table Of Contents

Executive Summary ..... 5
Industry SWOT Analysis . 7
Australia Political Environment and Risk Analysis .. 7
Australia Economic Environment and Risk Analysis 7
Australia Business Environment SWOT ..... 8
World Overview ..... 9
Steel Industry .... 9
Data : BMI’s Steel Projections ... 9
Data : Steel Products And Inputs - Price Data ... 12
Commodities Projection .... 13
Gold ... 13
Copper ..... 13
Aluminium 14
Lead ... 15
Nickel . 16
Tin 16
Zinc .... 17
Asia Overview . 19
Steel ... 19
Data : Top 10 Asian Steel Producers . 19
Aluminium 21
Forecast Scenario 23
Steel: Output To Recover Slowly From 2012 . 23
Data : Australia's Steel Market, from 2009 to 2016 ('000 tonnes, unless stated otherwise) . 27
Aluminium: Slow Growth To 2016 ..... 27
Data : Australia's Aluminium Production And Consumption, from 2009 to 2016 29
Nickel: Consumption To Remain Weak .... 30
Data : Australia's Refined Nickel Production And Consumption, from 2009 to 2016 31
Zinc: Rebound In Supply And Demand Growth ... 31
Data : Australia's Refined Zinc Production And Consumption, from 2009 to 2016 ... 33
Lead: Short-Term Rebound In Supply And Demand .. 33
Data : Australia's Refined Lead Production And Consumption, from 2009 to 2016 .. 35

Macroeconomic Data .. 35
Data : Australia - Economic Activity, from 2011 to 2016 ..... 37
Regulatory Development . 39

Competition Overview ... 42
Aluminium 42
Steel ... 43
Company Profiles . 44
Rio Tinto .. 44
Data : Rio Tinto's Key Financial Data, from 2008 to 2011 ... 45
Alcoa .. 46
Data : Alcoa’s Key Financial Data, from 2008 to 2011 .. 47
BlueScope Steel .... 48
OneSteel ... 50
World Assumptions, Q212.... 53
Data : World Assumptions, from 2010 to 2016 ... 53
Data : World And Regional Real Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) ... 54
Data : Developed Industry Exchange Rates, from 2011 to 2013 ... 54
Data : Emerging Industry Exchange Rates, from 2010 to 2013 ..... 55
Developed States .. 55
Data : Developed States - Real Gross Domestic Product Growth, from 2010 to 2013 .... 55
Emerging Industries ..... 56
Data : Emerging Industries - Real Gross Domestic Product Growth. from 2010 to 2013 .. 57
Consensus 58
Data : BMI And Bloomberg Consensus Real Gross Domestic Product Growth Projections, 2011 And 2012 (%) .. 58
Country Snapshot: Australia Demographic Data ... 59

Section I : Population . 59
Data : Demographic Indicators, 2005-2030 .. 59
Data : Rural/Urban Breakdown, from 2005 to 2012 . 60

Section II : Education And Healthcare 60
Data : Education, from 2002 to 2005 60
Data : Vital Statistics, 2005-2030 60

Section III : Labour Industry And Spending Power .. 61
Data : Employment Indicators, from 2001 to 2006 .... 61
Data : Consumer Expenditure, from 2000 to 2012 (US$) 61
Data : Average Annual Wages, from 2000 to 2012 .... 62
BMI Methodology . 63
How We Generate Our Market Projections .... 63
Cross Checks . 63

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