New market study, "South Africa Metals Report Q3 2011", has been published

July 18, 2011 - PRLog -- The South African steel industry will struggle to remain competitive over the next five years owing to rising electricity, labour and feedstock costs, and an overvalued rand. BMI believes that by 2015, South Africa will lag behind Egypt as Africa's leading steelmaking country.

In the first four months of 2011, South African crude steel output fell 21.5% year-on-year (y-o-y) to 2.16mn tonnes and the country's industry looked set to reverse the 13.3% gain it reported in 2010. South Africa lost ground to Egypt as Africa's largest steelmaking country as costs of production escalated and the domestic market remained in the doldrums. BMI forecasts a 28% drop in crude steel output to 7.92mn tonnes based on a return to average monthly output of 700,000 tonnes from May. Even this figure may prove to be optimistic given the headwinds facing the South African steel industry. However, we expect the industry to undergo a gradual recovery from 2012 with crude steel returning to above 10mn tonnes by 2015.

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External market trends will be supportive, however, with the World Steel Association (WSA) predicting a worldwide increase in steel consumption of 5.3% to 1.31bn tonnes in 2011, thereby exceeding pre-crisis levels. The resilience of emerging markets will assist South Africa with steel export growth of 9.9% to 2.2mn tonnes, although there is also an increased risk of volatility in raw material prices. With production estimated at around 2.3mn tonnes in 2010, South Africa represents 40% of the global ferrochrome market and will determine the fate of the ferrochrome market. Global demand for ferrochrome is forecast to remain healthy, with the volume of crude stainless steel around 30.5mn tonnes in 2010 and set to rise by 6% in 2011. In terms of domestic stainless production, BMI forecasts growth in South African output following what we believe to have been a record year in 2010, with the expected recovery likely to be sustained throughout 2011 and 2012.

In line with the downturn, the country's largest steelmaker, ArcelorMittal South Africa (AMSA), reported a large drop in Q111 profit amid a 7% decline in its output, a 3% fall in sales to 1.33mn tonnes and a 20% increase in the cash cost per tonne of steel sales. Higher costs were driven by increases in the prices of imported coking coal, iron ore, metallurgical coal and alloys. Nevertheless, AMSA decided to keep its steel product prices flat in May and raise some of them in June, with a 4.5% increase on a small number of speciality long products. It anticipated a recovery in sales and prices in Q211.

Raw materials as a proportion of total production cost increased from a third to two-thirds as iron ore prices doubled in 2010. This prompted AMSA to integrate its activities upstream in order to secure its position as a low-cost producer and compete with producers in Asia. Another threat to South African steelmaking margins is the strength of the rand, which is particularly troublesome as any recovery in output will be export-led, with domestic markets not expected to return to the 2006 peak until 2013. South Africa's power supply is likely to remain tight for the next five years, creating a risk for the energy-intensive metals processing industries, particularly mini-mills and smelters.

Report Table of Contents:

SWOT Analysis
- South Africa Political SWOT
- South Africa Economic SWOT
- South Africa Business Environment SWOT
- Steel to Average US$580/tonne In 2011
- BMI Steel Forecast
- Steel Prices
- Cost Push On The Supply Side
- Few Supply Constraints In Sight, For Now
Commodities Forecast
- Commodity Strategy - Metals Update
- Aluminium
- Copper
- Gold
- Lead
- Nickel
- Tin
- Zinc
Africa Overview
- Steel
- Aluminium
- Table: Aluminium Smelters In Africa
Forecast Scenario
- Table: South Africa's Metals Industry, 2008-2015 ('000 tonnes unless stated)
- Macroeconomic Forecasts
- South Africa - Economic Activity
Competitive Landscape
- Table: ArcelorMittal's Steel Mills In South Africa
Company Profiles
- BHP Billiton
Global Assumptions, Q311
- Table: Global Assumptions, 2009-2015
- Table: Global And Regional Real GDP Growth, 2010-2013 (% change y-o-y)
- Table: Selected Exchange Rates, 2010-2013 (average)
- Developed States
- Table: Developed States' GDP Growth, 2010-2013 (% change y-o-y)
- Emerging Markets
- Table: Emerging Markets' GDP Growth, 2010-2013 (% change y-o-y)
- Consensus Forecasts
- Table: Bloomberg Consensus GDP Growth Forecasts, 2011-2012 (% change y-o-y)
Country Snapshot: South Africa Demographic Data
- Section 1: Population
- Table: Demographic Indicators, 2005-2030
- Table: Rural/Urban Breakdown, 2005-2030
- Section 2: Education and Healthcare
- Table: Education, 2002-2005
- Table: Vital Statistics, 2005-2030
- Section 3: Labour Market and Spending Power
- Table: Employment Indicators, 2001-2006
- Table: Consumer Expenditure, 2000-2012 (US$)
- Table: Average Annual Wages, 2000-2012
BMI Methodology
- How We Generate Our Industry Forecasts
- Cross Checks

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Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.