2009-11-28 22:50:10 - Fast Market Research recommends "Canada Metals Report Q4 2009" from Business Monitor International, now available

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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