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Canada Metals Report Q3 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: July 2009 Product Code: R302-7477 Description The Canadian metallurgical sector will experience a deep contraction in 2009, but BMI’s latest CanadaMetals Report predicts a rapid return to growth from 2010, with the country set to enjoy some of thehighest post-recession growth rates in the developed world, provided US trade protectionism does not getin the way of recovery.In the first five months of 2009, Canadian crude steel output was down by just over 50% year-on-year(y-o-y) to 3.48mn tonnes as all the main consumers of Canadian metals, notably domestic and USconstruction and automotive industries, witnessed steep declines in orders and high inventories. By end-Q209, the industry, along with the rest of the manufacturing sector, was suffering from idle or shutteredplants due to the global economic downturn. In Canada, metals service centres shipped 375,500 tonnes ofsteel products during May 2009, down 40.3% y-o-y. For the first five months of the year, Canadianshipments totalled 2.06mn tonnes, down 35.6% y-o-y. End-May inventories of 1.12mn tonnes of steelproducts were down 30.3% y-o-y and equated to around three months supply. Canadian metals output will be helped by increased investment in infrastructure in H209 and 2010 as aresult of the government’s stimulus plans. The government’s CAD40bn fiscal plan will have a bit of animpact on economic activity, but not nearly as much as that of the US, which is nearly US$800bn. IfCanada can secure some form of exemption from the ‘Buy America’ clause in the US fiscal stimuluspackage, the domestic steel industry could share in the resulting increase in demand in the US. BMIestimates that the US represents 75-80% of Canadian steel exports, the equivalent of around 40% ofoutput. The US downturn has therefore had a deleterious impact on Canadian steel. Consequently, anymove towards trade protection in the US would shut Canadian producers out of an economic recovery inNorth America. This could lead to the permanent closure of capacity for the sake of protecting the lessefficient small- and medium-sized US producers that had lobbied for ‘Buy America’. However, therehave been encouraging signals from Washington, with US Secretary of State Hillary Clinton stating thatthe US will work with Canada to find a way to alleviate concerns surrounding the Buy American policyin the US economic stimulus bill. Recovery will depend on trends within key consuming industries. Canada’s property market generally didnot see the same level of over-extension as the US and while the housing boom is over, the market has notcollapsed. A return to growth in construction is therefore anticipated in 2010. While 15% steel outputgrowth is expected in 2010 with a similar rate of growth 2011, there are a number of medium- and longtermchallenges facing Canadian metals producers. A rapid expansion in global steel production capacity,particularly in China, is a chief concern for the Canadian industry. There are concerns about marketdistortions resulting from alleged subsidies and dumping by China, but even if these concerns wereaddressed, Chinese production is becoming more cost-effective as it expands. Canada’s dependence onimported raw materials, particularly bauxite, makes it highly vulnerable to escalating input prices as theworld economy picks up. BMI believes consolidation is necessary to meet these challenges, particularlyamong mini-mills. Smaller operations may close, the first of which will be Rio Tinto Alcan’s 52,000tpaBeauharnois smelter, which was to close by end-Q209. The declining domestic and NAFTAmanufacturing base will limit the size of the industry and serve as a barrier to expansion. With thesefactors in mind, BMI doubts that annual crude steel production will exceed 16mn tonnes in theforeseeable future and will reach just 14.5mn tonnes in 2013. BMI also expects imports to grow at afaster rate than exports, with Canada’s trade surplus with the US set to shrink and increased competitionon the global market, particularly from Asia. Table of Contents
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