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Canada Metals Report Q4 2009Product Type: Market Research ReportPublished by: Business Monitor International Published: October 2009 Product Code: R302-8537 Description Canadian steel mills are finding it increasingly difficult to compete in an adverse environment, as well asbeing unable to tap into the US market, where the main impetus for demand is related to state-fundedinfrastructural projects that utilise US steel under the Buy America programme, according to BMI’s latestCanada Metals Report.In the first eight months of 2009, Canadian crude steel output was down by just over 51% year-on-year(y-o-y) to 5.54mn tonnes, as all the main consumers of Canadian metals, notably domestic and USconstruction and automotive industries, witnessed steep declines in orders and high inventories. InAugust, output fell 52% y-o-y and 12.5% month-on-month (m-o-m) to 700,000 tonnes, indicating that theindustry had yet to begin its recovery. In 2008, Canadian steel production fell 3.8% y-o-y to 15.13mntonnes, with the decline largely the result of the aftermath of the international financial crisis that began inSeptember. By Q309, the industry, along with the rest of the manufacturing sector, was suffering fromidle or shuttered plants due to the global economic downturn. Steel plant capacity utilisation had fallenbelow 50%. According to the Metals Service Center Institute, shipments of steel and aluminum from metals servicecenters in Canada in August 2009 rose slightly from weak July levels, but destocking continued. Steelinventory to sales ratios fell as depleted quantities of the metal reduced stocks to nearly a two monthsupply. Metals service center shipped 415,500 tons of steel, down 18.8% y-o-y but up 4.3% m-o-m. Shipments for the first eight months of the year, of about 3.3mn tons, were down by 32.1% y-o-y. Canadian metals output will be helped by increased investment in infrastructure in H209 and 2010 as aresult of the government’s stimulus plans. Provincial budgets are allocating massive amounts toinfrastructure, sometimes on a shared-cost basis with the federal government. The government’sCAD40bn fiscal plan will have a bit of an impact on economic activity, but not nearly as much as that ofthe US, which is nearly US$800bn. If Canada can secure some form of exemption from the ‘BuyAmerica’ clause in the US fiscal stimulus package, the domestic steel industry could share in the resultingincrease in demand in the US. Given the protracted nature of the recession in North America and the impact of Buy America onCanada’s steel industry and economy as a while, BMI has revised down the crude steel output forecastfor 2010 from 15.0% to 8.7%. However, output growth is likely to reach 21.4% in 2011. There are anumber of medium- and long-term challenges facing Canadian metals producers. A rapid expansion inglobal steel production capacity, particularly in China, is a chief concern for the Canadian industry. The declining domestic and NAFTA manufacturing base will limit the size of the industry and serve as abarrier to expansion. With these factors in mind, BMI doubts that annual crude steel production willexceed 16mn tonnes in the foreseeable future and will reach just 13.58mn tonnes in 2013. BMI alsoexpects imports to grow at a faster rate than exports, with Canada’s trade surplus with the US set to shrinkand increased competition on the global market, particularly from Asia. Table of Contents
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