China and India steel South Africa metal producers for sustainable€™ growth

South African metals producers will face slower rates of growth over the medium term, but they will enjoy a sustainable recovery, experts predict.

The South Africa Metals Report Q1 2011 from Business Monitor International (BMI) estimates that crude steel output is set to grow 13.6% year-on-year (y-o-y) to 8.5m tonnes and hot-rolled output 13.4% to 6.2m tonnes, boosted by the economic recovery and export growth.

The study notes that South Africa represents 50.9% of total African crude steel output, with all the other major producers located in North Africa. “These increases reversed most of the losses of 2009, although overall capacity utilisation rates are still low and margins are poor. It will take until 2014 for the South African steel industry to exceed its peak 9.72m tonnes production in 2006 and BMI forecasts output exceeding 10mn tonnes again for the first time in 2015,” BMI noted.

However, the report goes on to caution that increasing domestic electricity prices and a strongly priced rand will undermine competitiveness in the South African metals industry and present downside risks.

“Some segments are more promising than others, but dependent on the market trends in Asia. South African ferrochrome prices were on the rise from end-2010 due to a bullish stainless steel market leading to shortages, as well as a strong rand, higher power costs and problems relating to labour disputes and transportation,” the report stated.

“Although ferrochrome prices in Q4 were less than half the level seen before the economic crisis of September 2008, high trading levels have prompted analysts to forecast a bullish market in 2011 and a swift return to pre-crisis levels by mid-year.”

BMI added that China and India’s growing steel industries continue to drive global ferrochrome demand: “In terms of domestic stainless production, BMIs forecasts for South African output remain bullish following an anticipated record year in 2010 recovery is likely to be sustained throughout 2011 and 2012.”