United States Metals Report Q1 2012

Includes 3 FREE quarterly updates

With US growth construction activity still faltering and the automotive market under pressure, US metals production is set for a slow year in 2012. However, BMI’s latest US Metals Report does not anticipate the kind of slump seen after the 2008 financial crisis, despite the concerns surrounding the impact of the eurozone crisis on the global market.

In 2011 US crude steel production grew 8.4% year-on-year (y-o-y) to 87.3mn tonnes while hot-rolled output rose 10.0% to 82.2mn tonnes on the back of a 19.5% rise in consumption to 99.1mn tonnes. However, it will be some years before production returns to normal. BMI forecasts flat production and consumption growth in 2012 due to a slowdown in manufacturing activity, but a contraction is unlikely.

In 2011, aluminium output grew 14.5% as producers brought potlines back online and the market returned to a healthier position. As a result, imports as a proportion of total supply fell from 45% in 2010 to 43% in 2011. Aluminium production was boosted in 2011 with Ormet reopening its alumina refinery in H211 and raising capacity utilisation at its 267,500 tonne per annum (tpa) smelter from 66% in 2010 to 100% due to positive demand conditions. Output is set to rise by a further 2.0% to 2.02mn tonnes in 2012.

Growth in consumption and production is expected to continue over the medium term, although the net national deficit is set to grow, requiring growth in imports. Further plant openings are expected amid the stabilisation of product prices and energy costs as well as improved demand. While product prices have fallen, the market appears to be resisting further falls with positive trends in Q4. The US aluminium market reached an estimated 4.69mn tonnes in 2011 and is forecast to reach 5.67mn tonnes by 2016, while production should reach 2.49mn tonnes, a return to levels more typical of pre-recession rates.

Copper production fell 8.9% y-o-y to 995,700 tonnes in 2011, according to BMI’s estimates. Output has come under pressure from problems at Asarco’s 450,000tpa refinery in Amarillo, Texas thereby restricting supply and driving up prices, although premiums over LME cash prices diminished over the year as demand softened and output declined month-on-month (m-o-m). The volatility of the copper market makes forecasting for 2012 very difficult and the year ahead will be challenging. On the upside, BMI believes that destocking activity has largely ended and this will prevent any repeat of the collapse in production and prices following the 2008 financial crisis, should another recession hit. A poor growth scenario in 2012 will limit the rise in demand to just 0.5%, reaching 1.73mn tonnes with little movement expected in the construction industry. Nevertheless, consumption will continue to outpace production over the next five years, leading to net imports of over 900,000 tonnes by 2016.

Zinc production will follow the fortunes of the construction sector, although increased domestic production of galvanised steel should boost demand. BMI revised down its production forecast for 2011 from 260,400 tonnes to 253,000 tonnes, an increase of 2% y-o-y. We expect 0.5% growth in consumption and production in 2012, a downward revision from 1% and 2% respectively in our previous quarterly forecast due to poorer prospects for growth. Nevertheless, output will be insufficient to cover domestic demand and will reach a limit of 305,000 tonnes by 2014-2015, despite Horsehead’s investment in capacity. As such, imports are set for a resurgence, growing by more than 30% from an estimated 690,000 tonnes in 2011 to 907,000 tonnes in 2016.

Full year lead production totalled 1.23mn tonnes (up 10% y-o-y) in 2011. The replacement of the old lead plant at Herculaneum will be crucial to sustaining national lead output at current levels. Without the full proposals available, BMI is not including the new smelter in the forecasts and as such, lead output is set to fall to 1.18mn tonnes by 2016. After years of decline, BMI expects strong growth in lead consumption in line with a 25% rise in automotive output in 2010-15. In 2011 we estimate a 10.0% rise in consumption to 1.55mn tonnes, up from the 1.45mn tonnes we forecast in the previous quarter. By 2016, the level should reach 1.73mn tonnes. This should prompt a rise in imports from 364,000 tonnes in 2011 to 561,000 tonnes in 2016.