Abstract
The South African steel industry has suffered greatly as a result of the recession at home and the
downturn throughout sub-Saharan Africa, and is unlikely to return to the levels seen in 2004-2007 over
the next five years, according to BMI's latest South Africa Metals Report.
In H109, South Africa's crude steel production plunged 24.0% year-on-year (y-o-y) to 3.38mn tonnes,
according to the latest data from the World Steel Association. This follows a dismal performance in
2008 when steel production fell 9.1% to 8.27mn tonnes with a large slump in output reported in Q408,
when output fell 42% y-o-y. However, output has begun its recovery from the December low point when
production totalled just 188,000 tonnes, reaching 580-600,000 tonnes per month in Q2, albeit still down
19% y-o-y. Exports and domestic sales have fared badly with the latter particularly badly hit. Poor
domestic sales performance is related to both the sharp slowdown in construction, particularly in the
residential sector as high interest rates deterred borrowing, and the decline in export-oriented industries
such as the automotive sector.
Stock levels in South Africa were very low by mid-2009, but volatile purchasing activity has made
distributors unwilling to increase purchases. Confidence within the industry is low, with buyers remaining
bearish. Amsa is reportedly operating at 60-65% capacity, while stockists are emptying their inventories
and holding back purchases in order to minimise the effects of falling prices on their margins. BMI does
not foresee crude output rising much beyond the level achieved in Q209, which would mean output of
6.88mn tonnes for the year as a whole, down 19.5% y-o-y.
South African mini-mills that use scrap as feedstock will be relieved to see an increase in prices in August
prompted by Amsa, having suffered months of operating at a loss as they struggle with rising scrap prices
and low product prices. However, with the South African economy in recession, they may struggle to find
a market at higher prices. BMI is not optimistic, with key steel consumers - the automotive, construction
and mining industries - experiencing a sharp contraction in output.
However, South Africa is not expected to return to levels of production seen in 2006-2008 over the next
five years. Longs will perform better than flats, with rebar expected to be particularly strong. Despite the
contraction in the construction sector in 2009, rebar production will perform a strong recovery with nearly
16% growth in 2010 and output rising above 890,000 tonnes in 2013, an increase of nearly 30% over
2008 levels. Domestic demand will not grow as fast as exports, with BMI expecting external markets to
lead growth over the medium-to-long term. Domestic apparent finished steel use is forecast to reach
6.3mn tonnes in 2013, recovering to near to 2008 levels, while exports are expected to total 1.89mn
tonnes (up 19.6% over 2008)
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