The Australian steel industry is recovering from record lows in March, but the depth of the recessionmakes it unlikely that the industry will return to previous output levels until 2013, according to BMI’slatest Australia Metals Report.
In H109, crude steel output fell 52% year-on-year (y-o-y) to 1.92mn tonnes. Output grew month-onmonth(m-o-m) from the March low of 238,000 tonnes (down 66% y-o-y), rising to 361,000 tonnes byJune (down 45%). This came after a 3.9% fall in output to 7.63mn tonnes in 2008 when key markets,particularly China, as well as the domestic market, witnessed a steep decline in demand in Q408.Export markets appear to be reviving as stimulus programmes in China and the US begin to take effect.
Meanwhile, domestic confidence is growing. Australian steelmakers Bluescope and OneSteel bothreported improvements in Q209. Recovery is slow but will be stimulated by the budget unveiled in May2009, which includes a multi-billion-dollar provision for infrastructure projects. Combined, thegovernment has pledged more than US$45bn for infrastructure for 2009-2011. We now believe that realgrowth in Australia’s construction industry will register a contraction of -0.8% in 2009, compared withour previous forecast (made last quarter) of -1.2%. In 2010, we believe the sector will undergo realgrowth of 0.3%, before accelerating to 1.8% in 2011. This compares favourably with our earlier forecastsof -1.1% in 2010 and 0.9% in 2011. As such, the biggest upward revisions apply to 2009 and 2010, whenthe impact of the new infrastructure package is likely to be most pronounced. For 2009 as a whole, steeloutput should reach 4.72mn tonnes, down 38% y-o-y, while domestic finished steel use should total5.61mn tonnes, down 35%.
The gradual recovery should be led by exports, particularly to China, although there are downside risksassociated with over-supply and volatile demand. In the event of a more pronounced recovery in privatelygenerated domestic construction activity, the steel industry should be boosted accordingly. Australianexporters will seek to diversify markets and the Chinese downturn could provide new opportunities,particularly in Southeast Asia. With Chinese production likely to be more domestically-oriented over theshort-to-medium term and its export tax on steel longs set to remain at 25%, China’s share of the billetmarket is expected to drop, giving Australian producers the chance to exploit the situation.
Aside from the downturn in demand, Australian metals production is faced with heightened risk from astricter regulatory environment. Steel and aluminium producers have voiced their opposition to thegovernment’s proposed Carbon Pollution Reduction Scheme (CPRS), which they say will increase costsand put jobs and investment at risk.
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