United States Metals Report Q4 2012

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We continue to forecast modest growth across the refined metals sector in the US as the economic recovery gains traction. Spurred on by growth in key metals consuming sectors we anticipate refiners and metals producers will cautiously bring production back online in order to meet demand. That said, production and consumption will likely remain below pre-crisis levels as the threat of economic weakness in China and the eurozone looms over the global economy.

We forecast relatively slow growth across the metals sector in the US between 2012 and 2016 given the stumbling economic recovery. As the world's largest economy continues to gain steam following the global financial crisis, both production and consumption will improve, albeit at a slow pace. The economy continues to recover from the global financial crisis. With large portions of production capacity taken offline in the wake of the economic downturn, refiners will slowly bring output back online as demand rises – especially from the construction and consumer goods sectors. We believe slow but steady growth in the metals sector will roughly track broader GDP growth, which we forecast to average 2.3% over the forecast period. That said, we highlight that the looming expiry of the 2001/2003 tax cuts at the end of 2012, and automatic spending cuts set to be implemented in January 2013, are of high stakes to the US economy. Total expiry of the tax cuts, and cutting government spending, would almost certainly tip an already-weak economy into a severe recession, with a fiscal contraction that could easily amount to 3.0- 5.0% of GDP.

The US metals sector does rely somewhat on imports of some mineral inputs such as bauxite and tin. We forecast little change in the nature of US metals trade, but recognise that sharp changes to metals prices could impact this dynamic. We expect the bulk of metals sector production will be supplied by domestic mineral resources to support US industries rather than for export abroad. We also note that domestic US companies will dominate production of their respective metals, although laws on foreign ownership of US based companies enables some foreign companies to operate as well.