Abstract
Canada’s metals industries are bracing themselves for sharp declines in
output in 2009 as the economy is
hit by a rapid deterioration in
conditions in both the domestic and US markets. However, BMI’s
Canada
Metals Report forecasts a recovery in 2010 with steel set to
rebound by 5%. Over the long-term, Canadian
producers are more concerned
by the challenges posed by China, alleging that Chinese producers are
undermining the industry with price dumping and unfair subsidies.
In 2008,
Canadian steel production fell 3.8% year-on-year (y-o-y) to 15.13mn tonnes,
with the decline
largely the result of the aftermath of the international
financial crisis that began in September. In Q408,
output was down 31.5%
y-o-y and continued its fall into 2009. By end-Q109 the industry, along with
the
rest of the manufacturing sector, was suffering from idle or shuttered
plants due to the global economic
downturn. Steel plant capacity
utilisation had fallen below 50%.
All the main consumers of Canadian steel
and aluminium, notably domestic and US construction and
automotive
industries, are witnessing steep declines in orders and high inventories. The
US, Canada’s
main trade partner and a major consumer of its metals
and metal products, will see its economy contract
by 2.3% in 2009, with
plummeting consumer demand particularly detrimental to Canada’s
manufacturing
exporters – typified by the struggling automobile
industry in Ontario which the steel industry relies on for
a large bulk of
orders. Meanwhile, the Canadian economy is forecast to shrink by 1.4%.
While 5% steel output growth is expected in 2010, there are a number of
medium- and long-term
challenges facing Canadian metals producers. A rapid
expansion in global steel production capacity,
particularly in China, is
the chief concern for the Canadian industry. There are also concerns about
market
distortions resulting from alleged subsidies and dumping by China,
but even if these concerns were
addressed, Chinese production is becoming
more cost-effective as it expands. Canada’s dependence on
imported
raw materials, particularly bauxite, makes it highly vulnerable to escalating
input prices as the
world economy picks up. BMI believes that
consolidation is necessary in order to meet these challenges,
particularly
among mini-mills. Smaller operations may close, the first of which will be Rio
Tinto Alcan’s
52,000 tonnes per annum (tpa) Beauharnois smelter,
which was to close by end-Q209. In the long term,
the declining domestic
and NAFTA manufacturing base will limit the future size of the industry and
will
serve as a barrier to expansion. With all these factors in mind, BMI
doubts that annual steel production
will exceed 16mn tonnes over the
foreseeable future and will reach just 14.9mn tonnes in 2013.
In recent
weeks, representatives of the Canadian steel and aluminium industries have
called on the federal
government to enforce trade rules and increase
spending on infrastructure projects. In March 2009, the
Canadian
International Trade Tribunal ruled that Chinese aluminium extrusion imports
were damaging
the domestic market. Anti-dumping and countervailing duties
could be imposed following the tribunal
ruling that the subsidised
products are injuring Canadian producers. The Chinese government has
strongly
protested the decision, insisting that China’s producers
are highly competitive and many are in private
hands, and accusing Canada
of breaching WTO rules.
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