Abstract
The South African steel industry should begin to show year-on-year (y-o-y)
growth in Q409, with price
rises expected in H209 as export markets show
signs of recovery, according to BMI’s latest South Africa
Metals
Report.
In the first four months of 2009, South Africa’s crude steel
production plunged 25.8% y-o-y to 2.2mn
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 580,000 tonnes by April, though still down 22%
y-o-y.
Exports and domestic sales have fared badly with the latter
particularly affected. 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.
Plans for
an increase in steel prices from July indicate that the South African market
may have reached its
bottom. ArcelorMittal South Africa (Amsa) announced
that it intended to lift flats prices by 4.5% and
longs by 5-6% for its
July deliveries. It said that the price revision was related to a more
optimistic
outlook on global markets, despite South Africa’s
economic recession. The price rise will be the first
since September 2008.
Since then, average South African steel prices fell by more than 60% until
May
2009, with prices unchanged in June.
Nevertheless, BMI forecasts
South African steel output of 6.77mn tonnes in 2009, down 18.1% and the
worst annual performance for decades. This is an upward revision from the
6.24mn tonnes we forecast in
the previous quarter, with the upward trend
in prices and a moderate recovery from end-2008 suggesting
that growth in
steel output will resume in Q409 and not 2010 as we originally forecast.
However, South
Africa is not expected to return to levels of production
seen in 2006-2008 until at least 2012, if at all.
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 post
a strong recovery of 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
steel use is forecast to reach 6.95mn tonnes in 2013
(up 8.8% over 2008)
while exports are expected to total 2.48mn tonnes (up 15.3%).
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